SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
[Amendment No. 1 ]
Filed by the Registrant [X]
Filed by the Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to
240.14a-11(c) or 240.14a-12
MEDICUS SYSTEMS CORPORATION
...........................................................
(Name of Registrant as Specified In Its Charter)
MEDICUS SYSTEMS CORPORATION
...........................................................
(Name of Person(s) Filing Proxy Statement, if other
than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(l)(ii),14a-6(i)
(l),or 14a-6(i)(2) or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to
Exchange Act Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules
14a-6(i)(4) and 0-11.
1) Title of each class of securities to which
transaction applies:
.......................................................
2) Aggregate number of securities to which transaction
applies:
.......................................................
3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule 0-11
(set forth the amount on which the filing fee is
calculated and state how it was determined):
......................................................
4) Proposed maximum aggregate value of transaction:
......................................................
5) Total fee paid:
......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as
provided by Exchange Act Rule 0-11(a)(2) and
identify the filing for which the offsetting fee
was paid previously. Identify the previous filing
by the registration statement number, or the Form
or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS
March 19, 1997
You are cordially invited to attend the Annual Meeting
of Stockholders of Medicus Systems Corporation (the
"Company") which will be held at the Company's executive
offices, third floor auditorium, One Rotary Center,
Evanston, Illinois, on March 19, 1997, at 2:00 p.m., Central
Time, for the following purposes:
1. To elect directors;
2. To consider and vote upon a proposal to approve the
Company's 1996 C.E.O. Replacement Stock Option
Plan. A copy of the plan is included as Exhibit A
to the proxy statement;
3. To consider and vote upon a proposal to approve the
Company's 1996 C.E.O. Special Stock Option Plan. A
copy of the plan is included as Exhibit B to the
proxy statement;
4. To consider and vote upon a proposal to approve the
amendments to and restatement of the Company's
1989, 1991, 1993, 1993 Performance and 1994 Stock
Option Plans. A copy of the form of amendment and
restatement of the Plans is included as Exhibit C
to the proxy statement;
5. To consider and vote upon a proposal to approve the
Company's 1997 Employee Stock Option and Restricted
Stock Plan. A copy of the plan is included as
Exhibit D to the proxy statement;
6. To consider and vote upon a proposal to approve
agreements pursuant to which the Company would
repurchase from Richard C. Jelinek, Chairman of the
Company (and a trust of which Mr. Jelinek is a
beneficiary), an aggregate of 1,000,000 shares of
Common Stock and 500 shares of Voting Preferred
Stock. A copy of the form of such agreements is
included as Exhibit E to the proxy statement; and
7. To transact such other business as may properly
come before the meeting.
Only stockholders of record at the close of business
on January 21, 1997 are entitled to vote at the Annual
Meeting or any adjournment thereof.
A proxy statement and a proxy card solicited by the
Board of Directors are enclosed herewith. It is important
that your shares be represented at the Annual Meeting
regardless of the size of your holdings. Whether or not you
intend to be present at the meeting in person, we urge you
to please mark, date and sign the enclosed proxy card and
return it in the envelope provided for that purpose, which
does not require postage if mailed in the United States. If
you attend the meeting, you may, if you wish, withdraw your
proxy and vote in person.
By /s/ William G. Brown
-----------------------
William G. Brown
Secretary
Evanston, Illinois
February 17, 1997
<PAGE>
MEDICUS SYSTEMS CORPORATION
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
March 19, 1997
This statement is furnished in connection with the
solicitation by the Board of Directors of Medicus Systems
Corporation ("Medicus" or the "Company") of proxies for use
at the Annual Meeting of Stockholders of the Company to be
held at the Company's executive offices, third floor
auditorium, One Rotary Center, Evanston, Illinois at 2:00
p.m., Central Time, on March 19, 1997, or any adjournment
thereof. Proxies properly executed and returned in a timely
manner will be voted at the Annual Meeting in accordance
with the directions specified therein. If no direction is
indicated, they will be voted for the election of the
nominees named herein as directors; for the proposal to
approve the 1996 C.E.O. Replacement Stock Option Plan; for
the proposal to approve the 1996 C.E.O. Special Stock Option
Plan; for the proposal to approve the amendments to and
restatement of the 1989, 1991, 1993, 1993 Performance and
1994 Stock Option Plans; for the proposal to approve the
1997 Employee Stock Option and Restricted Stock Plan; for
the proposal to approve the agreements providing for the
repurchase by the Company of 1,000,000 shares of Common
Stock and 500 shares of Voting Preferred Stock from Richard
C. Jelinek, and on other matters properly presented for a
vote, in accordance with the judgment of the persons acting
under the proxies. Any stockholder giving a proxy has the
power to revoke it any time before it is voted, either in
person at the meeting, by written notice to the Secretary of
the Company, or by delivery of a later-dated proxy.
The Company's executive offices are located at One
Rotary Center, Evanston, Illinois 60201 and its telephone
number is 847-570-7500. Proxy materials are being mailed to
stockholders beginning on or about February 17, 1997.
SHARES OUTSTANDING AND VOTING RIGHTS
Only stockholders of record at the close of business
on January 21, 1997, are entitled to vote at the Annual
Meeting. The only voting stock of the Company currently
outstanding is its Common Stock, $.01 par value, of which
6,477,173 shares were outstanding at the close of business
on January 21, 1997. Each share of Common Stock issued and
outstanding is entitled to one vote. With respect to the
proposals to approve the 1996 C.E.O. Replacement Stock
Option Plan, the 1996 C.E.O. Special Stock Option Plan, the
amendments to and restatement of the 1989, 1991, 1993, 1993
Performance and the 1994 Stock Option Plans, the 1997
Employee Stock Option and Restricted Stock Plan, and the
agreements providing for the repurchase by the Company of
1,000,000 shares of Common Stock and 500 shares of Voting
Preferred Stock from Richard C. Jelinek, an abstention will
have the effect of a vote against such proposals, and
non-voted shares will have no effect on the approval of such
proposals (assuming the presence of a quorum). Votes will be
tabulated, using an automated scanner, by the inspectors of
election appointed by the Company.
HISTORY
Prior to March 1, 1996, the Company's predecessor (the
"Predecessor Corporation") operated a software and related
services business and a small managed care business. In
February 1995, the Predecessor Corporation adopted a formal
plan to separate its managed care business from its software
and related services business. In order to effect this
separation, the Predecessor Corporation formed a new
Delaware subsidiary, Medicus Systems Software, Inc., to
which it transferred all of its assets and liabilities
excluding only the defined assets and liabilities of its
managed care business. In turn, the stock of this company
was distributed on March 1, 1996 on a share-for-share basis
to the stockholders of the Predecessor Corporation (the
"Distribution"), and the name of the new company was changed
to Medicus Systems Corporation. Immediately after the
Distribution, the Predecessor Corporation, which then
consisted only of the managed care business, effected a
one-for-three reverse stock split. Also on March 1, 1996,
immediately after the reverse stock split, the Predecessor
Corporation acquired three Arizona corporations engaged in
the managed care business through merger transactions (the
"Mergers") pursuant to which each of the three Arizona
corporations became a wholly-owned subsidiary of the
Predecessor Corporation, and the Predecessor Corporation's
name was changed to Managed Care Solutions, Inc. ("Managed
Care Solutions").
COMMON STOCK OWNERSHIP BY MANAGEMENT
The following table sets forth, as of December 6,
1996, certain information regarding the beneficial ownership
of the Company's Common Stock by each of the Company's
directors and executive officers named in the Summary
Compensation Table and by all directors and executive
officers of the Company as a group, and by each person known
by the Company to be the beneficial owner of 5 percent or
more of the outstanding Common Stock.
<PAGE>
<TABLE>
<CAPTION>
Name<F1> Shares Percent of
Beneficially Owned Common Stock
<S> <C> <C>
Richard C. Jelinek<F2><F3> 1,937,900 29.9%
Patrick C. Sommers<F3> 56,000 0.9%
James M. Alland 0 0.0%
William G. Brown<F3> 118,510 1.8%
Donald M. Dorfman<F3> 15,833 0.2%
Susan P. Dowell<F3> 120,500 1.9%
Jon E.M. Jacoby<F3> 73,750 1.1%
John P. Kunz 0 0.0%
Risa Lavizzo-Mourey<F3> 17,500 0.3%
Walter J. McNerney<F3> 113,128 1.7%
Frank A. Pierce<F3> 19,167 0.3%
Timothy K. Rutledge<F3> 81,120 1.3%
Gail L. Warden<F3> 108,250 1.7%
Hollybank Investments, LP<F4> 266,800 4.1%
Stephens Inc.<F5> 654,501 10.1%
All directors and
executive officers
as a group (21
persons)<F3> 2,758,058 40.9%
<FN>
<F1> The address of all of the persons named or identified
above, except for Stephens Inc. and Hollybank
Investments, LP, is c/o Medicus Systems Corporation,
One Rotary Center, Suite 1111, Evanston, Illinois
60201.
<F2> Includes 100,000 shares owned by Mr. Jelinek's wife.
<F3> Includes 2,500, 50,000, 2,500, 15,833, 32,500, 28,750,
17,500, 2,500, 19,167, 11,250, 2,500, and 267,350
shares covered by options held by Mr. Jelinek, Mr.
Sommers, Mr. Brown, Mr. Dorfman, Ms. Dowell, Mr.
Jacoby, Dr. Lavizzo-Mourey, Mr. McNerney, Mr. Pierce,
Mr. Rutledge, Mr. Warden and all directors and
executive officers as a group, respectively, which
were exercisable within sixty days of December 6,
1996. Such persons disclaim beneficial ownership of
such shares.
<F4> Represents shares as of November 29, 1995, as reported
on Schedule 13D ("13D"). The persons filing the 13D
are Hollybank Investments, LP, a Delaware Limited
Partnership ("LP") and Dorsey R. Gardner, the general
partner of LP ("Gardner"). The 13D was filed pursuant
to the purchase of shares of the Company's Common
Stock on November 29, 1995 which, when aggregated with
Gardner and LP's previously purchased shares, gives
Gardner deemed beneficial ownership of 326,800 of the
outstanding shares of the Company. Gardner, as general
partner of LP, may be deemed to beneficially own
shares beneficially owned by LP. Except to the extent
of his interest as a limited partner in LP, Gardner
expressly disclaims such beneficial ownership. The
address of Hollybank Investments, LP is One Financial
Center, Suite 1600, Boston, Massachusetts 02111.
<F5> Represents shares as of February 12, 1996, as reported
on Schedule 13G, Amendment No. 3. Stephens Inc.
disclaims beneficial ownership with respect to all of
the shares for all purposes other than for reporting
purposes on Schedule 13G. These shares are shares over
which Stephens Inc.'s investment adviser division,
Stephens Capital Management ("SCM"), has or shares
voting and dispositive power with respect to
discretionary accounts of customers of SCM. The
address of Stephens Inc. is 111 Center St., Little
Rock, Arkansas 72201.
</FN>
</TABLE>
The Company's certificate of incorporation authorizes
500 shares of Voting Preferred Stock, $1,000 par value.
Until May 31, 1998, the Voting Preferred Stock is entitled
to 44,000 votes per share, or 22,000,000 votes if all shares
are issued. After May 31, 1998, the Voting Preferred Stock
has 220 votes per share. Richard C. Jelinek, Chairman of the
Company, who beneficially owns approximately 29.9% of the
Common Stock outstanding, has an option to purchase all 500
shares of the Voting Preferred Stock for $1,000 per share at
any time prior to May 31, 1998. See "Approval of Agreements
with Richard C. Jelinek" for a description of the proposed
repurchase by the Company of all of the Voting Preferred
Stock.
ELECTION OF DIRECTORS
Seven directors are to be elected at the Annual
Meeting. The persons named below have been designated by the
Board of Directors as nominees for election as directors,
for terms expiring at the next Annual Meeting of
Stockholders. In addition, information is provided
concerning Walter J. McNerney, who has stated that he will
take a medical leave of absence from the Board, effective as
of the date of the Annual Meeting. All nominees are
currently serving as directors.
Unless authority is withheld, signed proxies which are
returned in a timely manner will be voted for the election
of the seven nominees for director, provided that if any of
such nominees should be unable to serve by virtue of an
unexpected occurrence, the proxies will be voted for such
other person or persons as will be determined by the holders
of the proxies in their discretion. Nominees receiving a
plurality of the votes of the shares present or represented
by proxy at the Annual Meeting and entitled to vote will be
elected as directors.
Biographical information concerning the seven nominees and
Mr. McNerney is presented below:
Richard C. Jelinek, age 59, Chairman of the Board of
the Company, was co-founder of the predecessor of the
Predecessor Corporation in 1969 and served as Chairman of
the Board of the Predecessor Corporation since its
incorporation in December 1984 through February 29, 1996.
From December 1984 through February 1996, he also served as
the Predecessor Corporation's Chief Executive Officer. From
1983 to 1985 he was also Chairman of the Board and Chief
Executive Officer of Mediflex Systems Corporation. Prior to
founding the predecessor of the Predecessor Corporation, Mr.
Jelinek was Associate Professor of Industrial Engineering
and Hospital Administration and Director, Systems
Engineering Group, Bureau of Hospital Administration at The
University of Michigan. He has a Ph.D. in Industrial
Engineering from The University of Michigan. He has been a
director of the Predecessor Corporation since its
incorporation in 1984 and of the Company and Managed Care
Solutions since the Distribution and Mergers. He has been
Chairman of the Board of Managed Care Solutions since July
1996.
Patrick C. Sommers, age 49, President and Chief
Executive Officer, joined the Company in his current
position in February 1996. From 1992 to 1996, Mr. Sommers
served as President of Ceridian Employer Services, a $400
million division of Ceridian Corporation (formerly Control
Data Corporation). From 1990 to 1992, Mr. Sommers was
President of GTE Information Services, a division of GTE
Corporation. From 1969 to 1990, Mr. Sommers served in
successive management positions with Dun & Bradstreet
Corporation, culminating with his position as President of
Dun & Bradstreet Information Resources, Inc.
William G. Brown, age 54, is a partner of Bell, Boyd &
Lloyd, Chicago, IL, counsel to the Company, and has been
Secretary and a director of the Predecessor Corporation
since its incorporation in December 1984, and of the Company
and Managed Care Solutions since the Distribution and
Mergers. Mr. Brown is also a director of MYR Group, Inc.,
Dovenmuehle Mortgage, Inc. and CFC International, Inc.
Jon E.M. Jacoby, age 58, is Executive Vice President,
Chief Financial Officer and member of the Board of Directors
of Stephens Group, Inc., an affiliate of Stephens Inc. Mr.
Jacoby is also a director of American Classic Voyages Co.,
St. Vincent Infirmary Medical Center, Delta & Pine Land Co.
and Beverly Enterprises, Inc. He was first elected a
director of the Predecessor Corporation in 1991 and has been
a director of the Company since the Distribution.
Risa Lavizzo-Mourey, age 42, is the Sylvan Eisman
Professor of Medicine and Health Care Systems at the
University of Pennsylvania where she is a practicing
Internist and Geriatrician. Dr. Lavizzo-Mourey earned her
medical degree and completed her residency at Harvard
Medical School followed by a Masters of Business
Administration at the University of Pennsylvania's Wharton
School. She also held faculty appointments at the Harvard
Medical School and Temple University Medical School. Dr.
Lavizzo-Mourey has served on numerous Federal advisory
committees, including the White House Task Force on Health
Care Reform where she co-chaired the Working Group on
Quality of Care and several Institute of Medicine
Committees. She continues to be a consultant to the White
House on Health Care Policy. Dr. Lavizzo-Mourey is a
director of Nellcor Puritan Bennett, the Kapson Group, the
American Board of Internal Medicine and a Regent of the
American College of Physicians. Dr. Lavizzo-Mourey has been
a director of the Predecessor Corporation since April 1994,
and of the Company and Managed Care Solutions since the
Distribution and Mergers.
Walter J. McNerney, age 71, is the Herman Smith
Professor of Health Policy at the J.L. Kellogg Graduate
School of Management, Northwestern University and Chairman
of Walter J. McNerney and Associates. From 1978 to 1981, Mr.
McNerney was national President of the Blue Cross and Blue
Shield Association. Mr. McNerney is Chairman of the Board of
McNerney Heintz, Inc. He is also a director of the Board of
American Health Properties, Inc., Hanger Orthopedic Group,
Inc., The Hospital Fund, Inc., Hospital Research and
Educational Trust, Institute for the Future, Institute of
Physician Management Relations, National Executive Service
Corps., Osteotech Inc., The Stanley Works, Inc., Value
Health, Inc. and Ventritex. He was first elected a director
of the Predecessor Corporation in 1985 and has served as a
director of the Company and Managed Care Solutions since the
Distribution and Mergers, and served as Chairman of the
Board of Managed Care Solutions from March 1, 1996 to July
1, 1996. Mr. McNerney has stated that he will take a medical
leave of absence from his duties as a director, effective as
of the date of the Annual Meeting, due to health reasons.
Therefore, he is not a nominee for election as a director at
the Annual Meeting. However, the Board currently intends to
increase the number of directors to eight, and to elect Mr.
McNerney to the resulting vacancy, at such time as his
health permits him to resume a full schedule of business
activities.
Gail L. Warden, age 58, is President and Chief
Executive Officer of Henry Ford Health System, Detroit, MI.
Mr. Warden is Past Chairman and Board Member of the American
Hospital Association Board of Trustees and a member of the
Governing Council of the Institute of Medicine of the
National Academy of Sciences. Mr. Warden is also a director
of the Robert Wood Johnson Foundation, Comerica Bank Midwest
of Detroit, Mental Health Management and American Healthcare
Systems. In addition, Mr. Warden is Chairman of the Michigan
Medicaid Funding Task Force, Vice Chairman of the Matthew
Thorton Health Plan, and a member of the Association for
Health Services Research and the Pew Health Professions
Commission. He is past Chairman of the Board of Trustees of
the National Committee for Quality Assurance. He was first
elected a director of the Predecessor Corporation in 1988
and has served as a director of the Company since the
Distribution and Mergers.
John P. Kunz, age 63, was elected a director on
January 2, 1997. He is founder and President, since 1989, of
J.P.K. Associates, an international consulting firm in the
information industry. From 1978 to 1989, Mr. Kunz served in
successive management positions with Dun & Bradstreet
Corporation, culminating with his position as President of
Dun & Bradstreet Business Marketing Services in 1984 and
President of Dun & Bradstreet Business Information Services
in 1989. From 1975 to 1978, Mr. Kunz served as Chairman of
R.H. Donnelley, Europe. Mr. Kunz was formerly a director of
Advance-Peterholm Group, Ltd., American Credit Indemnity
Company, Dun & Bradstreet International, and Intervest.
<PAGE>
MEETINGS AND COMMITTEES OF THE BOARD
During the fiscal year ended May 31, 1996, the Board
of Directors held seven meetings (six of which were meetings
of the Predecessor Corporation Board of Directors and one of
which occurred after the Distribution and Mergers). No
director attended fewer than three-fourths of the aggregate
number of meetings of the Board and of the committees
described below on which he or she served during the past
fiscal year, except that Jon Jacoby, a director of the
Predecessor Corporation, failed to attend two meetings of
the Predecessor Corporation Board of Directors. The Board
has designated an Audit Committee, whose functions include
making recommendations to the Board on the selection and
retention of the Company's independent accountants, and a
Compensation and Stock Option Committee, whose functions
include making recommendations to the Board regarding the
salaries and bonuses to be paid and stock options to be
granted to the executive officers and key employees of the
Company. Messrs. Brown and Jacoby are currently the members
of the Audit Committee and Dr. Lavizzo-Mourey and Messrs.
McNerney and Warden are currently the members of the
Compensation and Stock Option Committee. During the fiscal
year ended May 31, 1996, the Audit Committee and the
Compensation and Stock Option Committee met once. Prior to
the Distribution and Mergers, the Audit Committee of the
Predecessor Corporation met two times and the Compensation
and Stock Option Committee of the Predecessor Corporation
met five times.
COMPENSATION
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
===================================== ============
Other Underlying
Annual Options/ All Other
Name and Principal Fiscal Salary Bonus Compensation SARs Compensation
Position <F1><F2> Year ($) ($) ($) (#) ($) <F3>
- ------------------- ------ ----- ----- ----- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Richard C. Jelinek
Chairman 1996 247,917 - - 5,000 10,605
Patrick C. Sommers <F4>
Chief Executive Officer 1996 63,465 - - 718,000 -
James M. Alland
Executive Vice President 1996 173,250 - - - 3,465
Donald M. Dorfman
Vice President 1996 108,825 35,000 - 15,000 2,557
Susan P. Dowell
Executive Vice President 1996 173,250 - - - 3,465
Frank A. Pierce
Senior Vice President 1996 155,750 70,000 - 20,000 4,340
Timothy K. Rutledge
Vice President 1996 88,664 50,668 - - 2,324
<FN>
<F1> Includes the Chairman of the Board and Chief Executive
Officer and the other most highly compensated executive
officers as measured by salary and bonus meeting the
disclosure threshold requirements pursuant to Item 402
of S.E.C. Regulation S-K. In February 1996, Mr. Jelinek
resigned his position as President and Chief Executive
Officer of the Company and remains Chairman of the
Board of Directors. Mr. Sommers was elected President
and Chief Executive Officer of the Company in February
1996. Pursuant to Item 402, information is included on
James M. Alland, although he was no longer an executive
officer as of May 31, 1996.
<F2> Information is provided only for the fiscal year ended
May 31, 1996 because the Company only became subject to
the reporting requirements of the Securities Exchange
Act of 1934 in connection with the Distribution, which
occurred on March 1, 1996. The amounts shown include
compensation received from the Predecessor Corporation
prior to March 1, 1996.
<F3> The Company has a contributory retirement savings plan
which covers eligible employees who qualify as to age
and length of service. Participants may contribute 2%
to 15% of their salaries, subject to maximum
contribution limitations imposed by the Internal
Revenue Service. The amounts shown for Mr. Alland, Mr.
Dorfman, Ms. Dowell, Mr. Pierce and Mr. Rutledge
represent contributions to the accounts of these
individuals under such plans. Of the amounts shown for
Mr. Jelinek, $4,620 represents contributions to his
account under such plans and $5,985 represents amounts
paid to Mr. Jelinek as an automobile allowance.
<F4> The number of options shown for Mr. Sommers includes
350,000 options originally granted under the 1996
C.E.O. Stock Option Plan by the Predecessor Corporation
on February 28, 1996, which were assumed by the
Company, but were subsequently canceled upon the grant
by the Company of a new option for 350,000 shares under
its 1996 C.E.O. Replacement Stock Option Plan (also
reflected in the number of options shown in the table).
</FN>
</TABLE>
Option / SAR Grants Table
The following table provides information on stock
options granted to the named executive officers during
fiscal year 1996. The potential realizable value of each
grant of options was determined assuming that the market
price of the underlying security appreciates in value from
the date of grant to the end of the option term at
annualized rates of 5% and 10% as required pursuant to Item
402 of S.E.C. Regulation S-K.
Option / SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants 10-Year Option Term
============================================================ ===========================
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise
Options/SARs Employees in or Base Expiration 5%<F2> 10%<F2>
Name Granted(#)<F1> Fiscal Year Price ($/Sh) Date ($) ($)
- ------------- -------------- ------------- ------------ ------ ----- ----
<S> <C> <C> <C> <C> <C> <C>
Richard C. Jelinek 5,000 0.7% 7.605 2/27/06 23,956 60,460
Patrick C. Sommers <F3> 350,000 7.510 2/28/06 1,653,050 4,189,152
Patrick C. Sommers <F4> 175,000 24.5% 6.500 3/12/06 716,625 1,808,625
Patrick C. Sommers <F5> 58,333 8.2% 6.500 3/12/06 238,875 602,875
Patrick C. Sommers <F6> 58,333 8.2% 6.500 3/12/06 238,875 602,875
Patrick C. Sommers <F7> 58,333 8.2% 6.500 3/12/06 238,875 602,875
Patrick C. Sommers <F8> 18,000 2.5% 2.000 3/12/06 154,710 267,030
James M. Alland - - - - - -
Donald M. Dorfman 15,000 2.1% 6.825 7/28/05 64,496 162,776
Susan P. Dowell - - - - - -
Frank A. Pierce 20,000 2.8% 6.825 7/28/05 55,125 217,035
Timothy K. Rutledge - - - - - -
<FN>
<F1> Generally, options granted in fiscal year 1996 are
exercisable starting 12 months after the grant date,
with 25 percent of the shares covered thereby becoming
exercisable at that time and with an additional 25
percent of the option shares becoming exercisable on
each successive anniversary date, with full vesting
occurring on the fourth anniversary date. The options
were granted for a term of 10 years, subject to earlier
termination in certain events related to termination of
employment.
<F2> These amounts represent certain assumed rates of
appreciation only. Actual gains, if any, on stock
option exercises and Common Stock holdings are
dependent on the future performance of the Common Stock
and overall stock market conditions. There can be no
assurance that the amounts reflected in this table will
be achieved.
<F3> These options were granted on February 28, 1996 by the
Predecessor Corporation under the 1996 C.E.O. Stock
Option Plan, were assumed by the Company, and were
subsequently canceled on March 12, 1996 upon the grant
by the Company of 350,000 new options under the 1996
C.E.O. Replacement Stock Option Plan. Therefore, the
options granted on February 28, 1996 have been omitted
in calculating the percentage of total options/SARs
granted to employees during the fiscal year.
<F4> Of these options, 25% were immediately exercisable,
with an additional 25% becoming exercisable on each of
the second, third and fourth anniversaries of the date
of grant.
<F5> Represents performance options which will vest if the
price of the Common Stock for ten consecutive trading
days exceeds (i) $9.50 prior to February 28, 1997, (ii)
$11.50 between March 1, 1997 and February 28, 1998, or
(iii) $13.50 between March 1, 1998 and February 28,
2000.
<F6> Represents performance options which will vest if the
price of the Common Stock for ten consecutive trading
days exceeds (i) $11.50 prior to February 28, 1998, or
(ii) $13.50 between March 1, 1998 and February 28,
2000.
<F7> Represents performance options which will vest if the
price of the Common Stock exceeds $13.50 for ten
consecutive trading days prior to February 28, 2000.
<F8> This grant to Mr. Sommers represents options which have
an exercise price of $2.00 per share, all of which
become exercisable on February 28, 1997. The closing
price of the Company's Common Stock on the date of
grant was $6.50 per share. The price used as the base
share price in calculating the potential realizable
value of the grant was $6.50. At the date of grant, the
value of these options was $81,000.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Option / SAR Exercises and Year-end Valuation Table
Aggregated Option / SAR Exercises in Last Fiscal Year and FY-End Option / SAR Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/
Options/SARs at FY-End SARs at FY-End (3)
------------------------------- -----------------------
Shares Acquired Value
on Exercise <F1> Realized <F2> Exercisable Unexercisable Exercisable Unexercisable
Name (#) ($) (#) (#) ($) ($)
- -------------- --------------- ----------- -------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Richard C. Jelinek - - 1,250 8,750 - -
Patrick C. Sommers - - 43,750 324,250 - 65,250
James M. Alland - - 80,000 65,000 - -
Donald M. Dorfman - - 9,583 43,750 - -
Susan P. Dowell - - 27,500 22,500 - -
Frank A. Pierce - - 19,167 77,500 - -
Timothy K. Rutledge - - 11,250 3,750 - -
<FN>
<F1> Number of securities underlying options/SARs exercised.
<F2> Market value of underlying securities on date of
exercise, minus the exercise or base price. (3) Market
value of underlying securities at year-end ($5.625),
minus the exercise or base price.
</FN>
</TABLE>
Director Compensation
All directors of the Company are paid an annual
retainer of $12,000. In addition, under the Company's 1994
Directors' Stock Option Plan, an option to purchase 5,000
shares of the Company's Common Stock is granted to each
director of the Company at the time of each annual meeting
of the stockholders. Each option is for a term of ten years,
becomes exercisable with respect to 25% of the shares
covered thereby on each of the first four anniversaries of
the date of grant and has an exercise price equal to the
fair market value on the date of grant. At the time of his
election to the Board, Mr. Kunz was granted an option to
purchase 30,000 shares of Common Stock on similar terms and
has waived his rights to receive an option under the
Directors' Stock Option Plan at the time of the Annual
Meeting.
Employment Agreements
The Company has entered into an employment agreement
with Patrick C. Sommers providing for his employment as
President and Chief Executive Officer of the Company. The
agreement, which was entered into in February 1996 and
amended in March 1996, provides that during Mr. Sommers'
full-time employment, he is to receive an annual salary of
not less than $250,000 and is eligible to participate in
Medicus' bonus plan with a targeted bonus of 44% of his base
salary in accordance with the Company's customary practices
and formulae. Mr. Sommers also received options to purchase
368,000 shares of the Company's Common Stock. Of the total
option grant, the option to purchase 175,000 shares is
subject to vesting in four equal increments of 25% on the
date of the agreement and on February 28, 1998, 1999, and
2000. The option to purchase an additional 175,000 shares is
subject to vesting in three separate tranches triggered by
the closing price of Medicus Common Stock for ten
consecutive trading days equaling or exceeding specified
targets. Of the remaining total option grant, the option to
purchase 18,000 shares is subject to vesting on February 28,
1997 with such option not being subject to cancellation as a
result of his termination for any reason prior to February
28, 1997. In the event of a change in control of Medicus,
Medicus has agreed that if Mr. Sommers' employment is
terminated by the Company other than for cause or, without
his consent, Medicus materially changes his duties or
responsibilities or the location of his principal place of
work and as a result of such change or changes he
voluntarily terminates his employment, then, in either such
event, all of Mr. Sommers' outstanding options will vest and
become exercisable on the date of termination of his
employment. In addition, if a change of control occurs
during the first twelve months following the date of his
employment agreement, and if at the time of the change in
control his vested in-the-money options do not have a value
of at least $1,000,000, Medicus will alternatively
accelerate enough of Mr. Sommers' options so that he has a
vested value of $1,000,000 or pay him a bonus equal to the
difference between the vested value of his options and
$1,000,000.
The Company has entered into an employment agreement
with Frank A. Pierce providing for his employment as Senior
Vice President of the Company. The agreement, which was
entered into in May 1994 and expires in May 1998, provides
that Mr. Pierce's employment will be full time for the first
two years of its term and may become part-time thereafter at
either party's option. During his full-time employment, Mr.
Pierce is to receive an annual salary of not less than
$140,000, with an annual bonus in the first two years of
$70,000 if certain personal and corporate objectives are met
(and bonuses thereafter in accordance with the Company's
customary practices). During any period of less than
full-time employment, Mr. Pierce's annual salary will not be
less than $12,000. Mr. Pierce is eligible for the same
benefits as other Company employees, except that he will be
eligible for 26 days of paid time off annually. At the time
of execution of the agreement, Mr. Pierce received options
to purchase 20,000 shares of the Company's Common Stock,
subject to vesting in four annual installments of 25%, and
performance options to purchase an additional 56,667 shares
of the Company's Common Stock, subject to vesting in four
annual installments of 25%, if agreed upon performance
objectives are met.
At the time of Mr. Jelinek's resignation as Chief
Executive Officer of the Company, the Company and Mr.
Jelinek entered into a letter agreement providing that, for
the two-year period beginning June 1, 1996 (the date of
Jelinek's resignation as a full-time employee), Mr. Jelinek
would serve as Chairman of the Board and as a consultant to
Medicus. The agreement provides that Mr. Jelinek will
receive compensation of $250,000 annually. The agreement
also provides that Mr. Jelinek will receive (i) lifetime
medical benefits for himself and his wife equivalent to
those provided to Medicus executives, (ii) reimbursement of
Mr. Jelinek's out-of-pocket expenses for his relocation to
Colorado, and (iii) the services of a full-time secretary at
his office in Colorado. In connection with this agreement,
Mr. Jelinek executed a modified version of the Medicus
Standard Key Employee Executive Non-disclosure Agreement.
Compensation and Stock Option Committee Report
The Company's compensation policies applicable to its
executive officers are administered by the Compensation and
Stock Option Committee of three independent non-employee
members of the Board of Directors.
<PAGE>
Compensation Philosophy
The Company's compensation programs are designed to
link executives' compensation to the performance of the
Company and provide competitive compensation for the
Company's executives relative to a select group of peer
companies in order to attract and retain high caliber senior
executives essential to the Company's long-term prosperity.
The compensation mix reflects a balance of annual base
salary, annual cash awards, including incentive awards, and
equity-based incentives. Annual incentive cash awards are
granted based on the achievement of corporate financial
targets, divisional operating and financial objectives, and
individual performance. Emphasis, however, is placed on the
more strategic equity-based plans that build shareholder
value and provide incentives to motivate executive behavior
over the long term.
Compensation Program
The Company's executive officer compensation consists
of two key elements: (1) an annual cash component comprised
of base salary and bonus; and (2) a long-term equity
component with respect to which existing holdings of Common
Stock are recognized and, in appropriate cases, stock
options are granted. The policies with respect to each of
these elements are described below.
(1) Annual Compensation
Base salaries for executive officers are determined by
evaluating the responsibilities of the position and
comparing it with other executive officer positions in the
Company and the marketplace. For purposes of comparability,
the Company utilizes annual executive compensation surveys
prepared internally as well as periodic surveys prepared by
a nationally recognized compensation consulting firm. For
this purpose, the "market" consists of a broad range of
companies with which the Company feels it competes for
executive talent. This group is different than the peer
group used for comparison purposes in the stock price
performance graph that appears elsewhere in this proxy
statement because the Company believes the market for
executive talent extends to a broader range of companies
than those included in the stock price performance graph.
Annual salary adjustments are determined by a review
of market research, the Company's performance (measured by
earnings per share growth), the individual's contribution to
that performance, and for executive officers responsible for
particular business units, the financial and operating
results of their business units. No specific weights are
assigned to these factors.
For fiscal 1996, bonuses had two elements: a Company
Performance Incentive and an Individual Performance
Incentive. The Company Performance Incentive is an incentive
program based on the Company meeting or exceeding its
targeted earnings objective and is defined as a percentage
of each executive's salary. The Company Performance
Incentive program is designed to link compensation to the
performance of the Company. Under this program, the Company
must produce a minimum target return to shareholders before
Company performance awards are generated. At the minimum
target level, 50% of the Company Performance award is given.
An additional award of 50% of the Company Performance award
can be paid should the Company achieve its "stretch" target
performance level. The award increases incrementally, up to
150% of the Company Performance award, if the Company
achieves an earnings per share above the "stretch" level.
For fiscal 1996, the minimum target return to shareholders
was not achieved, and therefore Company Performance
Incentive bonuses were not awarded. The Individual
Performance Incentive is an incentive program based on
achieving individual objectives that are defined at the
beginning of each fiscal year. Individual objectives, such
as business unit operating profit, customer satisfaction
measures and customer deliverables, are action-oriented with
measurable outcomes and/or results. Individual performance
objectives were achieved by the following named executive
officers as exhibited in the Compensation Table contained
herein: Mr. Dorfman, Mr. Pierce and Mr. Rutledge.
(2) Long-Term Compensation
To align shareholders' and executive officers'
interests, the Company's long-term compensation plan uses
stock option grants whose value is related to the value of
the Company's Common Stock. Grants of stock options are made
under the Medicus Systems Corporation 1989, 1991, 1993, and
1994 Stock Option Plans, the 1993 Performance Stock Option
Plan, the 1994 Director's Stock Option Plan, and, subject to
shareholder approval, the 1996 C.E.O. Replacement Stock
Option Plan, 1996 C.E.O. Special Stock Option Plan, and the
1997 Employee Stock Option and Restricted Stock Plan, which
are being presented for approval to the stockholders at the
Annual Meeting (see "Approvals of 1996 C.E.O. Replacement
Stock Option Plan and 1996 C.E.O. Special Stock Option Plan"
and "Approval of 1997 Employee Stock Option and Restricted
Stock Plan"). In granting options, the Board takes into
account existing stock holdings and options already held by
each executive. The size of each option grant is determined
by the individual's position within the Company, the
individual's level of responsibility and the number of
options currently held by the individual.
Generally, stock options are granted with an exercise
price equal to the fair market value of the Company's stock
on the date of grant. Stock options generally vest in four
annual increments and are exercisable up to ten years from
the date granted. In addition, the Company has granted and
intends to continue granting performance-based options which
vest upon the attainment of individually-specified goals or
after nine years. Both types of stock options provide
incentive for the creation of stockholder value over the
long term since the full benefit of the compensation package
cannot be realized unless an appreciation occurs in the
price of the Company's Common Stock over a specified number
of years.
CEO Compensation
During fiscal 1996, the Company's most highly
compensated executive officer was Richard C. Jelinek,
Chairman of the Board and, until February 1996, the Chief
Executive Officer of the Predecessor Corporation. As a
director of the Company, Mr. Jelinek was awarded 5,000
options under the 1994 Director's Stock Option Plan. His
annual compensation was determined by the Committee using
the same criteria that were used to determine compensation
levels for other corporate officers and was based on the
Committee's assessment of Mr. Jelinek's overall performance.
No specific weighting was assigned to these factors. In
addition, it was the opinion of the Committee that Mr.
Jelinek's leadership and vision has strengthened the
position of the Company over the past several years and for
the future. In the Committee's view, Mr. Jelinek's fiscal
1996 compensation package reflects an appropriate balance of
(i) the Company's performance in fiscal 1995, (ii) Mr.
Jelinek's own performance level, and (iii) competitive
standards.
On February 28, 1996, Mr. Sommers joined the Company
as President and Chief Executive Officer. Pursuant to Item
402, information related to Mr. Sommers' compensation has
been included herein. Mr. Sommers' annual compensation was
determined by the Committee using the same criteria that
were used to determine compensation levels for other
corporate officers and was based on the Committee's
assessment of the responsibilities of the position and
comparing it with other executive officer positions in the
Company and the marketplace. In addition, Mr. Sommers was
granted options to purchase a total of 368,000 shares of
Medicus Common Stock (see "Employment Agreements"). It was
the opinion of the Committee that the options granted to Mr.
Sommers align his interests with those of stockholders and
the size of the grant was commensurate with the level of
responsibility of his position. In the Committee's view, Mr.
Sommers' fiscal 1996 compensation package reflects an
appropriate balance of (i) the Company's performance during
his tenure in fiscal 1996, (ii) Mr. Sommers' own performance
level, and (iii) competitive standards.
Policy with Regard to the $1 Million Deduction Limit
In 1993, Section 162(m) was added to the Internal
Revenue Code. This section generally limits to $1 million
the tax deduction for compensation paid to executive
officers of a publicly-held corporation who are named in the
proxy statement, subject to an exception for a
"performance-based" compensation plan as defined under that
section. The 1996 C.E.O. Replacement Stock Option Plan, the
Company's existing employee stock option plans, as proposed
to be amended as described in this proxy statement, and the
1997 Employee Stock Option and Restricted Stock Plan, are
intended to qualify as "performance-based plans," except
with respect to Restricted Shares awarded under such plans.
The Company's Compensation and Stock Option Committee has
determined that the other compensation currently paid to the
Company's executive officers, including Restricted Shares,
is not expected to exceed the limitation as set forth in
Section 162(m).
The foregoing report has been approved by all members
of the Committee and Mr. Brown, who served on the Committee
during fiscal 1996.
William G. Brown
Risa Lavizzo-Mourey
Walter J. McNerney
Gail L. Warden
<PAGE>
Option Repricing Report and Table
The following table sets forth certain information
concerning the repricing of stock options occurring since
August 1, 1991, the date the Predecessor Corporation became
a reporting company under the Securities Exchange Act of
1934.
<TABLE>
<CAPTION>
Ten Year Options/SAR Repricings
=========================================
Number of
Securities
Underlying
Options/ SARs Market Price of Exercise Price Original Term
Repriced or Stock at Time of at Time of New Remaining at
Amended (#) Repricing or Repricing or Exercise Date of
Name <F1> Date Amendment ($) Amendment ($) Price ($) Repricing
- -------- ---- ---------- ------------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Patrick C. Sommers 3/12/96 350,000 6.50 7.51 6.50 9yr., 11 mo.
Chief Executive
Officer
Deborah R. Suckow 2/27/93 10,000 8.75 10.00 8.75 9yr., 4 mo.
Vice President
Robert C. Steffel 2/27/93 2,000 8.75 10.00 8.75 9yr., 4 mo.
Sr. Vice President 7/8/94 1,000 12.00 18.88 12.00 9yr., 7 mo.
7/8/94 50,000 12.00 17.00 12.00 9yr., 10 mo.
Donald Simborg 7/8/94 170,000 12.00 17.00 12.00 9yr., 10 mo.
Sr. Vice President
Victor W. Sterne 2/27/93 9,000 8.75 10.00 8.75 9yr., 4 mo.
Vice President
Carol Hayden 2/27/93 10,000 8.75 10.00 8.75 9yr., 4 mo.
Vice President
Michael Minear 2/27/93 2,000 8.75 10.00 8.75 9yr., 4 mo.
Vice President
George Whetsell 2/27/93 60,000 8.75 10.00 8.75 9yr., 4 mo.
Vice President
Robert Barcklay 7/8/94 2,000 12.00 18.88 12.00 9yr., 7 mo.
Vice President
Arlene Verona 7/8/94 10,000 12.00 18.88 12.00 9yr., 7 mo.
Vice President
Roxane Spitzer-Lehmann 7/8/94 5,000 12.00 17.00 12.00 9yr., 10 mo.
Vice President
Frank A. Pierce 7/8/94 76,667 12.00 17.25 12.00 9yr., 11 mo.
Sr. Vice President
<FN>
<F1> The repricings of stock options granted to Ms. Suckow,
Mr. Steffel, Mr. Simborg, Mr. Sterne, Ms. Hayden, Mr.
Minear, Mr. Whetsell, Mr. Barcklay, Ms. Verona, Ms.
Spitzer-Lehmann and Mr. Pierce were approved by the
Predecessor Corporation's Board of Directors and
occurred prior to the Distribution. For these
individuals, the market prices, the original exercise
prices and the new exercise prices shown in the
Repricing Table are the actual prices at the time the
repricings occurred and have not been adjusted to
reflect the impact of the Distribution on these
prices.
</FN>
</TABLE>
On March 12, 1996, the Compensation and Stock Option
Committee of the Company's Board of Directors determined
that certain stock options issued to the Chief Executive
Officer by the Predecessor Corporation had an exercise price
higher than the market price of the Company's Common Stock.
In light of the Committee's conclusion that such options
were not providing the desired incentive, it replaced
options with exercise prices of $7.51 per share with new
stock options to purchase an identical number of shares of
the Company's Common Stock at the then current market price
of $6.50 per share.
William G. Brown
Walter J. McNerney
Gail L. Warden
Performance Graph
The following graph compares the cumulative total
shareholder return on Medicus Systems Corporation Common
Stock to that of the Nasdaq market index and an index
comprised of the common stock of 17 peer companies that
compete in the healthcare information systems industry over
the period from the Distribution of the Company's common
shares to stockholders of the Predecessor Corporation on
March 1, 1996 to May 31, 1996. In calculating cumulative
total shareholder return, reinvestment of dividends is
assumed, and the returns of each member of the peer group
are weighted for market capitalization.
CORPORATE PERFORMANCE GRAPH
(See Appendix A)
March 1, 1996 May 31, 1996
------------- ------------
Medicus 100 70.7
Nasdaq U.S. 100 113.3
Peer Group 100 116.0
The peer group of companies was selected based upon
their being in the business of healthcare information
systems and related services. The companies in the peer
group, which for Corporate Performance Graph purposes does
not include the Company, are as follows: Access Health
Marketing, Cerner Corporation, Cycare Systems, Inc., First
Data Corporation, GMIS, Inc., HBO & Company, Health
Management Systems, Health Risk Management, Keane, Inc.,
Medaphis Corporation, Medic Computer Systems, Mediware
Information Systems, Policy Management Systems, Shared
Medical Systems, Spacelabs Medical, Inc., U.S. Services,
Inc. and Value Health, Inc.
The following graph compares the cumulative
shareholder return on Predecessor Corporation Common Stock
over the period from the initial public offering of
Predecessor Corporation Common Stock on August 1, 1991, to
February 29, 1996 (the last trading day prior to the
Distribution) to that of the Nasdaq market index and an
index comprised of the common stock of 17 peer companies
that compete in the healthcare information systems industry.
In calculating cumulative total shareholder return,
reinvestment of dividends is assumed, and the returns of
each member of the peer group are weighted for market
capitalization.
CORPORATE PERFORMANCE GRAPH
(See Appendix A)
1991 1992 1993 1994 1995 1996 (1)
---- ---- ---- ---- ---- ----
Medicus 100 147 114 219 132 121
Nasdaq U.S. 100 118 142 150 178 227
Peer Group 100 107 125 152 203 260
(1) Data is shown as of February 29, 1996, the last
trading day prior to the Distribution.
The peer group of companies selected by the
Predecessor Corporation to graph the corporate performance
prior to the Distribution is identical to the peer group of
companies selected by the Company as listed above.
Compensation and Stock Option Committee Interlocks and
Insider Participation
Messrs. McNerney and Warden and Dr. Lavizzo-Mourey are
currently the members of the Compensation and Stock Option
Committee. Mr. Brown served on such committee during fiscal
1996. None of the Company's directors have interlocking or
other relationships with other boards or the Company that
require disclosure under Item 402(j) of S.E.C. Regulation
S-K, except as described below.
For the fiscal year ended May 31, 1996, the Company
incurred legal fees for general legal services and fees
associated with the Distribution, effective March 1, 1996,
of $360,619 to the law firm of Bell, Boyd & Lloyd, of which
William G. Brown, Secretary and a director of the Company,
is a partner. In addition, during fiscal 1996, the Company
received payments of $452,392 for sales of products and
services to Henry Ford Health System, Detroit, MI, of which
Gail L. Warden, a director of the Company, is the President
and Chief Executive Officer. Also, during the fiscal year,
the Company incurred fees of $19,283 from Stephens Inc. for
financial advisory services rendered to the Company in
connection with the Distribution. Jon E.M. Jacoby, Executive
Vice President, Chief Financial Officer and director of
Stephens Group, Inc., an affiliate of Stephens Inc., serves
as a director of the Company. Also, Stephens' affiliates
either own or manage approximately 16% of the issued and
outstanding shares of the Company's Common Stock.
Relationship Between Managed Care Solutions and the Company
Messrs. Jelinek, Brown and McNerney and Dr.
Lavizzo-Mourey are each directors, and Mr. Jelinek is
Chairman of the Board, of both the Company and Managed Care
Solutions. In connection with the Distribution, the Company
and Managed Care Solutions entered into a Distribution
Agreement and Services Agreement.
Distribution Agreement. The Distribution Agreement
provides for, among other things, the principal corporate
transactions required to effect the Distribution, the
division between Managed Care Solutions and the Company of
certain liabilities, the treatment of certain employee
compensation, benefit and labor matters, and certain other
agreements governing the relationship between the Company
and Managed Care Solutions following the Distribution.
Subject to certain exceptions, the Distribution Agreement is
designed to place with the Company, following the
Distribution, financial responsibility for the liabilities
of the Company's businesses and for other corporate
liabilities of the Predecessor Corporation, except those
liabilities relating to businesses that relate specifically
to the business of Managed Care Solutions.
The Distribution Agreement provides that, except as
otherwise set forth therein, all costs and expenses arising
prior to the Distribution in connection with the
Distribution were to be paid by Managed Care Solutions
(except that the Company was to pay all expenses in
connection with the filing of its Registration Statement on
Form 10 and the printing and mailing of the related
Information Statement) and that both the Company and Managed
Care Solutions will indemnify each other in respect of
certain liabilities under the Securities Exchange Act of
1934. Except as otherwise specifically provided in the
Distribution Agreement, the Company will generally indemnify
Managed Care Solutions for all liabilities arising in
connection with the assets and businesses of the Company or
that are otherwise unrelated to the businesses of Managed
Care Solutions.
The Company and Managed Care Solutions have also
agreed to make records and personnel available to each other
in connection with audits, claims, litigation and
preparation of tax returns. The Distribution Agreement also
provides for the allocation of benefits between the Company
and Managed Care Solutions under existing insurance
policies.
Pursuant to the Distribution Agreement, the Company
generally assumed all liabilities of the Predecessor
Corporation under employee pension and welfare benefit plans
with respect to the employees and former employees
(including retirees and disabled workers) of the Company's
businesses. In addition, the Company has agreed that it will
be solely responsible for salary and bonus deferrals by
employees of the Company who are not also employees of
Managed Care Solutions following the Distribution.
Services Agreement. The Company and Managed Care
Solutions have also entered into a Services Agreement
pursuant to which the Company was to (i) make available to
Managed Care Solutions certain services, including tax,
accounting, data processing, cash management, employee
benefits, monitoring, operational, supervisory, insurance
purchasing and claims administration consulting services,
and (ii) provide certain financial services to Managed Care
Solutions, including analysis and advice regarding potential
financial transactions (including, but not limited to,
proposed issuances of debt or equity securities, proposed
mergers or asset acquisitions or sale transactions and
dividend, stock split or similar transactions), assistance
in budget and forecast preparation, relations with financial
analysts, financial press, and investors, and crisis
management and control. Such services were to commence on
the date of the Distribution and continue for one year.
Managed Care Solutions was to pay the Company $700,000 for
such services. In order to compensate the Company for fixed
costs in making such services available, Managed Care
Solutions was obligated to pay such fees whether or not it
elects to utilize the services. Managed Care Solutions will
also reimburse the Company for its out-of-pocket expenses in
connection therewith. The Services Agreement also provides
that the Company will not be liable for any losses or
damages suffered in respect of services to be performed
thereunder, other than by reason of its willful misconduct
or gross negligence in performing such services.
CERTAIN TRANSACTIONS
For descriptions of certain transactions between the
Company and Messrs. Brown, Jacoby, Warden and Managed Care
Solutions, see "Compensation and Stock Option Committee
Interlocks and Insider Participation."
APPROVALS OF 1996 C.E.O. REPLACEMENT STOCK OPTION PLAN
AND 1996 C.E.O. SPECIAL STOCK OPTION PLAN
In order to continue to encourage ownership of the
Company's Common Stock by executives, key personnel and
directors of the Company and to provide incentives for them
to make maximum efforts for the success of the business, the
Board of Directors of the Company has adopted and recommends
that stockholders vote to approve the Medicus Systems
Corporation 1996 C.E.O. Replacement Stock Option Plan (the
"1996 C.E.O. Replacement Plan") and the Medicus Systems
Corporation 1996 C.E.O. Special Stock Option Plan (the "1996
Special Plan"). Options granted under the 1996 C.E.O.
Replacement Plan and the 1996 Special Plan are intended not
to qualify as "Incentive Stock Options" as defined in the
Internal Revenue Code of 1986, as amended (the "Code").
The 1996 C.E.O. Replacement Plan and the 1996 Special
Plan were adopted by the Board of Directors in connection
with the hiring of Mr. Sommers as Chief Executive Officer of
the Company. On March 12, 1996, the date the plans were
adopted, Mr. Sommers received options to purchase 350,000
shares under the 1996 C.E.O. Replacement Plan, at an
exercise price of $6.50 per share, and an option to purchase
18,000 shares under the 1996 Special Plan, at an exercise
price of $2.00 per share. The closing sales price of the
Common Stock on that date was $6.50. On July 19, 1996, Mr.
Sommers received options to purchase 50,000 shares under the
1996 C.E.O. Replacement Plan at an exercise price of $5.25
per share, the closing sales price on the Common Stock on
that date. The aggregate grants to Mr. Sommers represent all
of the shares covered by the 1996 C.E.O. Replacement Plan
and the 1996 Special Plan, and approval of such plans will
also constitute, in effect, approval of such grants.
The following descriptions are qualified in their
entirety by reference to the terms of the 1996 C.E.O.
Replacement Plan and the 1996 Special Plan, copies of which
are attached to this proxy statement as Exhibit A and
Exhibit B, respectively.
Description of the 1996 C.E.O. Replacement Plan
The 1996 C.E.O. Replacement Plan is administered by a
committee of the Board of Directors composed of no fewer
than two disinterested outside directors designated by the
Board of Directors. The Compensation and Stock Option
Committee (the "Committee") currently administers the 1996
C.E.O. Replacement Plan. The Committee has the authority to
determine the persons to be granted options under the 1996
C.E.O. Replacement Plan, the number of shares subject to
each option, the time or times at which options will be
granted, the option price of the shares subject to each
option (which price shall not be less than the fair market
value of the shares at the date of grant), and the time or
times when each option becomes exercisable and the duration
of the exercise period.
Options may be granted to key employees and directors
(other than members of the Committee) of the Company.
Options may be granted with respect to a total of not more
than 400,000 shares of Common Stock under the 1996 C.E.O.
Replacement Plan, subject to antidilution and other
adjustment provisions. No individual may receive options
covering more than 400,000 shares under the 1996 C.E.O.
Replacement Plan. No options may be granted under the 1996
C.E.O. Replacement Plan after March 12, 2006. If an option
expires or is terminated or canceled unexercised as to any
shares, such released shares may again be optioned
(including a grant in substitution for a canceled option).
Each option is for such term of not more than ten
years as shall be determined by the Committee at the date of
the grant. Each option becomes exercisable in such
installments, at such time or times, and may be subject to
such conditions, including conditions based upon the
performance of the Company, as the Committee may in its
discretion determine at the date of grant. The Committee may
accelerate the exercisability of any option or, at any time
before the expiration or termination of an option previously
granted, extend the terms of such option for such additional
period as the Committee, in its discretion, shall determine,
except that the aggregate option period with respect to any
option, including the original term of the option and any
extensions thereof, shall never exceed ten years.
The Committee may permit the purchase price for shares
purchased upon exercise of an option to be paid, all or in
part, by the delivery to the Company of other shares of
Common Stock of the Company in such circumstances and manner
as the Committee may specify, valued at the fair market
value of the Common Stock at the close of business on the
date preceding the exercise date.
If the employment or tenure as a director of any
optionee with the Company is terminated for any reason other
than death, permanent disability, retirement or cause, such
optionee's option, to the extent the option is exercisable
at the date of termination, shall expire thirty days after
the termination of employment or directorship (or upon the
scheduled termination of the option, if earlier). In the
event of termination of employment or directorship because
of death or permanent disability, the option may be
exercised in full, unless otherwise provided at the time of
grant, without regard to any installments established at the
time of grant, by the optionee or, if he is not living, by
his heirs, legatees, or legal representative, during its
specified term prior to one year after the date of death or
permanent disability. In the event of termination of
employment or directorship because of retirement, the option
may be exercised by the optionee (or, if he dies within
three months after such termination, by his heirs, legatees,
or legal representative), at any time during its specified
term prior to three months after the date of such
termination, but only to the extent the option was
exercisable at the date of such termination. If an optionee
is discharged for cause, his option shall expire forthwith
and all rights to purchase shares under it shall terminate
immediately. For this purpose, "discharge for cause" means a
discharge on account of dishonesty, disloyalty or
insubordination.
No option is transferable by the optionee otherwise
than by will or the laws of descent and distribution, and
each option shall be exercisable during an optionee's
lifetime only by him.
The Board of Directors may amend or discontinue the
1996 C.E.O. Replacement Plan at any time. However, no such
amendment or discontinuation shall (a) change or impair any
option previously granted without the consent of the
optionee, (b) increase the maximum number of shares which
may be purchased by all optionees, (c) change the minimum
purchase price, (d) change the limitations on the option
period or increase the time limitations on the grant of
options, or (e) permit the granting of options to members of
the Committee.
Description of the 1996 Special Plan
The 1996 Special Plan is administered by a committee
of the Board of Directors composed of no fewer than two
disinterested outside directors designated by the Board of
Directors. The Compensation and Stock Option Committee (the
"Committee") currently administers the 1996 Special Plan.
Options under the 1996 Special Plan may only be
granted to the Chief Executive Officer of the Company.
Options may be granted with respect to a total of not more
than 18,000 shares of Common Stock under the 1996 Special
Plan, subject to antidilution and other adjustment
provisions.
Each option is for such term of not more than ten
years as shall be determined by the Committee at the date of
the grant. An option to purchase 18,000 shares at an
exercise price of $2.00 per share has been granted to Mr.
Sommers under the 1996 Special Plan. Such option will become
fully exercisable on February 28, 1997.
If the employment or tenure as a director of any
optionee with the Company is terminated for any reason other
than death, permanent disability, retirement or cause, such
optionee's option, to the extent the option is exercisable
at the date of termination, shall expire thirty days after
the later of (i) February 28, 1997, and (ii) termination of
employment or directorship (or upon the scheduled
termination of the option, if earlier). In the event of
termination of employment or directorship because of death
or permanent disability, the option may be exercised in
full, unless otherwise provided at the time of grant,
without regard to any installments established at the time
of grant, by the optionee or, if he is not living, by his
heirs, legatees, or legal representative, during its
specified term prior to one year after the date of death or
permanent disability. In the event of termination of
employment or directorship because of retirement, the option
may be exercised by the optionee (or, if he dies within
three months after such termination, by his heirs, legatees,
or legal representative), at any time during its specified
term prior to three months after the date of such
termination, but only to the extent the option was
exercisable at the date of such termination. If the optionee
is discharged for cause, his option shall expire forthwith
and all rights to purchase shares under it shall terminate
on the later of (i) thirty days following February 28, 1997,
or (ii) the date of discharge. For this purpose, "discharge
for cause" means a discharge on account of dishonesty,
disloyalty or insubordination.
No option is transferable by the optionee otherwise
than by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order, and each
option shall be exercisable during an optionee's lifetime
only by him.
Options granted to date under the 1996 C.E.O.
Replacement Plan and the 1996 Special Plan, subject in each
case to shareholder approval, are displayed in the following
table.
<PAGE>
New Plan Benefits
1996 C.E.O.
Replacement 1996 Special
Name Plan (#) Plan (#)
============================== =========== ============
Richard C. Jelinek
Chairman
Patrick C. Sommers
President and C.E.O 400,000 18,000
James M. Alland
Executive Vice President
Donald M. Dorfman
Vice President
Susan P. Dowell
Executive Vice President
Frank A. Pierce
Senior Vice President
Timothy K. Rutledge
Vice President
Executive Officers as a Group 400,000 18,000
Non-executive Directors
All Employees as a Group 400,000 18,000
On January 21, 1997, the last reported sales price of
the Company's Common Stock on the Nasdaq National Market (as
reported by the "Wall Street Journal" (Midwest Edition)) was
$ 6.625 per share.
Federal Tax Consequences
The Company understands that no gain or loss will be
recognized to an optionee upon the grant of an option under
the 1996 C.E.O. Replacement Plan or the 1996 Special Plan,
but that upon exercise of the option, ordinary income
measured by the excess of the fair market value of the
shares acquired over the option price will be recognized by
the optionee. The Company will be entitled to a deduction
equal to the amount of ordinary income recognized by the
optionee, except that with respect to stock issued upon
exercise of options granted under the 1996 Special Plan, the
Company may be restricted in its ability to deduct
compensation in excess of $1 million pursuant to Section
162(m) of the Internal Revenue Code. See "Compensation -
Compensation and Stock Option Committee Report - Policy with
Regard to the $1 Million Deduction Limit." An optionee's
basis in shares acquired upon the exercise of an option will
be equal to the option price plus the amount of ordinary
income recognized to the optionee. An optionee's holding
period begins on the date on which the option is exercised.
Vote Required
Approval of both the 1996 C.E.O. Replacement Plan and
the 1996 Special Plan requires the affirmative vote of the
holders of a majority of the shares of Common Stock present
or represented by proxy at the Annual Meeting and entitled
to vote. Richard C. Jelinek, Chairman of the Company and the
owner of approximately 28.4% of the outstanding Common
Stock, has agreed that he will take such actions as may be
necessary to cause the 1996 C.E.O. Replacement Plan and the
1996 Special Plan to be approved by stockholders. Mr.
Jelinek has the ability, if necessary, to acquire the voting
power necessary to ensure such approval through the exercise
of the option he holds to acquire all of the Company's
Voting Preferred Stock (none of which is currently
outstanding). As a result of the agreement described above,
Mr. Jelinek will, if necessary, exercise his option to
acquire, and will vote, a sufficient number of the Voting
Preferred Stock shares to ensure approval of the 1996 C.E.O.
Replacement Plan and the 1996 Special Plan. Therefore, the
approval of the 1996 C.E.O. Replacement Plan and the 1996
Special Plan is assured regardless of how stockholders other
than Mr. Jelinek vote. The Board of Directors recommends
that stockholders vote FOR approval of each plan. If no
other direction is given, signed proxies which are returned
in a timely manner will be voted for approval of the 1996
C.E.O. Replacement Plan and for approval of the 1996 Special
Plan. Any stockholder giving a proxy has the power to revoke
it any time before it is voted, either in person at the
meeting, by written notice to the Secretary of the Company,
or by delivery of a later-dated proxy. With respect to the
proposals, an abstention will have the effect of a vote
against such proposal, and non-voted shares will have no
effect on the approval of such proposals (assuming the
presence of a quorum).
APPROVAL OF AMENDMENTS TO AND RESTATEMENT OF THE
COMPANY'S 1989, 1991, 1993, 1993 PERFORMANCE AND 1994 STOCK
OPTION PLANS
Background. The stockholders of the Company have
previously approved the Company's 1989 Stock Option Plan
(the "1989 Plan"), the Company's 1991 Stock Option Plan (the
"1991 Plan"), the Company's 1993 Stock Option Plan (the
"1993 Plan"), the Company's 1993 Performance Stock Option
Plan (the "1993 Performance Plan") and the Company's 1994
Stock Option Plan (the "1994 Plan"), which plans shall be
collectively referred to hereafter as the "Plans."
Purpose. The Board of Directors has unanimously
adopted and recommends that the stockholders approve
substantially similar amendments (the "Amendments") to each
of the Plans. The purposes of the Amendments are: (i) to
provide an ability to the Committee which administers the
Plans to grant restricted shares of Common Stock
("Restricted Shares") in addition to stock options under the
terms of the Plans; and (ii) with respect to options granted
under the Plans after the date of the Annual Meeting, to
qualify the Plans as "performance-based plans" under Section
162(m) of the Internal Revenue Code of 1986 (as amended) and
the regulations promulgated thereunder. The Board of
Directors also adopted and recommends that the stockholders
approve restatements of each of the Plans to incorporate the
Amendments. Each of the Plans, as so amended and restated,
is identical except with respect to (i) the number of shares
authorized to be issued under each of the Plans, (ii) the
effective dates of the Plans, (iii) the dates after which no
further grants shall be made under the Plans, and (iv) the
name of the Plans. A copy of the form of amended and
restated plan is attached to the proxy statement as Appendix
C. The form of amended and restated plan sets forth the
specific differences among the 1989 Plan, the 1991 Plan, the
1993 Plan, the 1993 Performance Plan and the 1994 Plan. The
following summary of the Amendments and the amended and
restated form of plan is qualified in its entirety by
reference to the text of the form of amended and restated
plan. Approval by stockholders of the form of amended and
restated plan shall be deemed to be approval of the
Amendments and of the amendment and restatement of the 1989
Plan, the 1991 Plan, the 1993 Plan, the 1993 Performance
Plan and the 1994 Plan (the "Amended and Restated Plans").
The Board of Directors recommends that the stockholders vote
FOR approval of the Amendments. If no direction is given,
signed proxies which are returned in a timely manner will be
voted for approval of the Amendments. Approval of the
Amendments requires the affirmative vote of the holders of a
majority of the shares of Common Stock represented at the
Annual Meeting and voting on the issue, whether in person or
by proxy. Abstentions will have the effect of a vote against
the Amendments and non-voted shares will have no effect on
the approval of the Amendments (assuming the presence of a
quorum).
Summary of the Amendments
Number of Shares Covered by Grants to Any Individual;
Exercise Price. The Amendments to the Plans provide that the
number of shares of Common Stock covered by any option or
options together with the number of Restricted Shares
granted to any single individual in any calendar year will
not exceed 100,000 shares of Common Stock under each plan.
In addition, the 1989 and 1991 Plans will be amended to
clarify that the exercise price of options under such Plans
shall not be less than the fair market value of the shares
at the date of grant.
Administration. Under the terms of the Amendments, the
Committee which administers the Plans shall, in addition to
its authority with respect to the granting of stock options,
have the authority, in its sole discretion, (a) to determine
the individuals to whom Restricted Shares are granted; (b)
to determine the number of Restricted Shares subject to
grant; (c) to determine the time or times when Restricted
Shares are granted; (d) to determine the time or times, or
conditions upon which, restrictions on the Restricted Shares
lapse (the duration of such restrictions hereinafter
referred to as the "Restricted Period"); (e) to accelerate
the Restricted Period for Restricted Shares; (f) to
determine the terms of each grant of Restricted Shares; (g)
to prescribe the form or forms of agreements which evidence
Restricted Shares granted; and (h) to interpret the Plans
and to adopt rules or regulations which, in the Committee's
opinion, may be necessary or advisable for the
administration of the Plans. In addition, under the
Amendments, the Committee will be composed of directors who
qualify as "outside" directors for purposes of Section
162(m). Except as described above, the Amended and Restated
Plans provide for no changes in the authority of the
Committee under the Plans.
Rights and Restrictions Governing Restricted Shares.
At the time of grant of Restricted Shares, one or more
certificates representing the number of shares of Common
Stock granted to an individual shall be registered in such
individual's name or for such individual's benefit either
individually or collectively with others. The certificates
shall be held by the Company for the account of the
individual. The individual shall have other rights of a
holder as to such shares of Common Stock including the right
to vote such shares and the right to receive cash dividends
declared and paid to holders of Common Stock. The individual
shall not be entitled to receive the certificates
representing the shares of Common Stock subject to the grant
of Restricted Shares until the restrictions with respect to
the Restricted Shares have lapsed. If a dividend is paid in
shares of Common Stock, such shares of Common Stock shall be
held by the Company subject to the same restrictions as the
Restricted Shares that is the basis of the stock dividend.
None of the Restricted Shares may be sold, transferred,
assigned, pledged or otherwise encumbered or disposed of
during the period in which restrictions apply. Except to the
extent the individual's employment is terminated by reason
of death, permanent disability or retirement (as defined in
the Plans), Restricted Shares shall be forfeited and all
rights of the individual with respect to Restricted Shares
shall terminate without further obligation of the Company in
the event the individual granted the Restricted Shares does
not remain in the continuous employment of the Company for
the entire Restricted Period.
Payments of Restricted Shares. At the end of the
Restricted Period, all restrictions shall lapse as to the
Restricted Shares and one or more certificates for the
appropriate number of shares of Common Stock shall be
delivered to the individual, unless the Committee, in its
sole discretion, has authorized the individual, at his
request, to defer the receipt of all or any portion of the
Restricted Shares in accordance with the terms of the
amendment.
Federal Tax Consequences of Restricted Share Grants.
Under existing federal income tax law, no income will be
recognized by the individual to whom Restricted Shares have
been granted at the time of the Restricted Shares award.
Upon the expiration of the Restricted Period, the individual
will be required to treat as ordinary income the fair market
value of the stock and the Company will be entitled to a
deduction in such amount, except that the value of such
Restricted Shares may be taken into account in determining
whether the Company is restricted in its ability to deduct
certain compensation in excess of $1 million paid to
executives. See "Compensation Compensation and Stock Option
Committee Report - Policy with Regard to $1 Million
Deduction Limit."
Summary of the Amended and Restated Plans
The Plans are administered by a committee of the Board
of Directors composed of no fewer than two disinterested
outside directors designated by the Board of Directors. The
Compensation and Stock Option Committee (the "Committee") of
the Board of Directors currently administers the Plans. The
Committee has authority to determine the persons to be
granted options under the Plans, the number of shares
subject to each option, the time or times at which options
will be granted, the option price of the shares subject to
each option (which price shall not be less than the fair
market value of the shares at the date of grant), and the
time or times when each option becomes exercisable and the
duration of the exercise period.
Options or Restricted Shares may be granted to key
employees and directors (other than members of the
Committee) of the Company. Options or Restricted Shares may
be granted with respect to a total of not more than 220,000,
200,000, 300,000, 200,000 and 400,000 shares of Common Stock
under the 1989, 1991, 1993, 1993 Performance and 1994 Plans,
respectively, subject to anti-dilution and other adjustment
provisions. The maximum number of shares subject to all
options, together with all Restricted Shares, granted to any
individual in any calendar year shall in no event exceed
100,000 under each plan. No options or Restricted Shares may
be granted under the 1989, 1991, 1993, 1993 Performance and
1994 Plans after January 1, 1999, August 31, 2001, January
31, 2003, March 31, 2001 and April 14, 2004, respectively.
If an option expires or is terminated or canceled
unexercised as to any shares, such released shares may again
be optioned (including a grant in substitution for a
canceled option).
Each option is for such term of not more than ten
years as shall be determined by the Committee at the date of
the grant. Each option becomes exercisable in such
installments, at such time or times, and may be subject to
such conditions, including conditions based upon performance
of the Company, as the Committee may in its discretion
determine at the date of grant. The Committee may accelerate
the exercisability of any option or, at any time before the
expiration or termination of an option previously granted,
extend the terms of such option for such additional periods
as the Committee, in its discretion, shall determine, except
that the aggregate option period with respect to any option,
including the original term of the option and any extensions
thereof, shall never exceed ten years. All employees are
eligible to participate in the 1989, 1991, 1993, 1993
Performance and 1994 Plans.
The Committee may permit the purchase price for shares
purchased upon exercise of an option to be paid, all or in
part, by the delivery to the Company of other shares of
Common Stock in such circumstances and manner as the
Committee may specify, valued at the fair market value of
the Common Stock at the close of business on the date
preceding the exercise date.
If the employment or tenure as director of any
optionee with the Company is terminated for any reason other
than death, permanent disability, retirement or cause, such
optionee's option, to the extent the option is exercisable
at the date of termination, shall expire thirty days after
the termination of employment or directorship (or upon the
scheduled termination of the option, if earlier). In the
event of termination of employment or directorship because
of death or permanent disability, the option may be
exercised in full, unless otherwise provided at the time of
grant, without regard to any installments established at the
time of grant, by the optionee or, if he is not living, by
his heirs, legatees, or legal representative, during its
specified term prior to one year after the date of death or
permanent disability. In the event of termination of
employment or directorship because of retirement, the option
may be exercised by the optionee (or, if he dies within
three months after such termination, by his heirs, legatees,
or legal representative), at any time during its specified
term prior to three months after the date of such
termination, but only to the extent the option was
exercisable at the date of such termination. If an optionee
is discharged for cause, his option shall expire forthwith
and all rights to purchase shares under it shall terminate
immediately. For this purpose, "discharge for cause" means a
discharge on account of dishonesty, disloyalty or
insubordination.
No option is transferable by the optionee otherwise
than by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order, and each
option shall be exercisable during an optionee's lifetime
only by him.
The Board of Directors may amend or discontinue the
Plans at any time. However, no such amendment or
discontinuation shall (a) change or impair any option
previously granted without the consent of the optionee, (b)
increase the maximum number of shares which may be purchased
by all optionees, (c) change the minimum purchase price, (d)
change the limitations on the option period or increase the
time limitations on the grant of options, or (e) permit the
granting of options to members of the Committee.
Federal Tax Consequences of Options. No gain or loss
will be recognized to an optionee upon the grant of an
option under the Plans, but upon exercise of the option,
ordinary income measured by the excess of the fair market
value of the shares acquired over the option price will be
recognized to the optionee. The Company will be entitled to
a deduction equal to the amount of ordinary income
recognized to the optionee. An optionee's basis in shares
acquired upon the exercise of an option will be equal to the
option price plus the amount of ordinary income recognized
to the optionee. An optionee's holding period begins on the
date on which the option is exercised.
No Restricted Shares have been granted under the Plans
as of the date of this proxy statement and no Restricted
Shares will be granted until the Amendments as set forth in
the form of amended and restated plans are approved by
stockholders of the Company. In the event the Amendments are
not approved, the 1989 Plan, 1991 Plan, 1993 Plan, 1993
Performance Plan and 1994 Plan will continue to be
administered in accordance with their terms as they existed
immediately prior to the adoption of the Amendments by the
Board of Directors.
APPROVAL OF 1997 EMPLOYEE STOCK OPTION AND RESTRICTED
STOCK PLAN
In order to continue to encourage ownership of the
Company's Common Stock by executives, key personnel and
directors of the Company and to provide incentives for them
to make maximum efforts for the success of the business, the
Board of Directors of the Company has adopted and recommends
that stockholders vote to approve the Medicus Systems
Corporation 1997 Employee Stock Option and Restricted Stock
Plan (the "1997 Employee Plan"). Options granted under the
1997 Employee Plan are intended not to qualify as "Incentive
Stock Options" as defined in the Internal Revenue Code of
1986, as amended (the "Code"). A copy of the 1997 Employee
Plan is attached to this proxy statement as Exhibit D. The
following summary of the 1997 Employee Plan is qualified in
its entirety by reference to the text of the plan. The Board
of Directors recommends that stockholders vote FOR approval
of the 1997 Employee Plan. If no direction is given, signed
proxies which are returned in a timely manner will be voted
for approval of the 1997 Employee Plan. Approval of the 1997
Employee Plan requires the affirmative vote of the holders
of a majority of the shares of Common Stock represented at
the Annual Meeting and voting on the issue, whether in
person or by proxy. Abstentions will have the effect of a
vote against the 1997 Employee Plan and non-voted shares
will have no effect on the approval of the 1997 Employee
Plan (assuming the presence of a quorum).
The 1997 Employee Plan is administered by a committee
of the Board of Directors composed of no fewer than two
disinterested outside directors designated by the Board of
Directors. The Compensation and Stock Option Committee (the
"Committee") of the Board of Directors currently administers
the 1997 Employee Plan. The Committee has authority to
determine the persons to be granted options under the 1997
Employee Plan, the number of shares subject to each option,
the time or times at which options will be granted, the
option price of the shares subject to each option (which
price shall not be less than the fair market value of the
shares at the date of grant), and the time or times when
each option becomes exercisable and the duration of the
exercise period. In addition, the Committee shall have the
authority, in its sole discretion, (a) to determine the
individuals to whom restricted shares of Common Stock
("Restricted Shares") are granted; (b) to determine the
number of Restricted Shares subject to a grant; (c) to
determine the time or times when Restricted Shares are
granted; (d) to determine the time or times, or conditions
upon which, restrictions on the Restricted Shares lapse (the
duration of such restrictions hereinafter referred to as the
"Restricted Period"); (e) to accelerate the Restricted
Period for Restricted Shares; (f) to determine the terms of
each grant of Restricted Shares; (g) to prescribe the form
or forms of agreements which evidence Restricted Shares
granted; and (h) to interpret the 1997 Employee Plan and to
adopt rules or regulations which, in the Committee's
opinion, may be necessary or advisable for the
administration of the 1997 Employee Plan.
Options or Restricted Shares may be granted to key
employees and directors (other than members of the
Committee) of the Company. Options or Restricted Shares may
be granted with respect to a total of not more than 300,000
shares of Common Stock under the 1997 Employee Plan, subject
to anti-dilution and other adjustment provisions. The
maximum number of shares subject to all options, together
with all Restricted Shares, granted to any individual in any
calendar year shall in no event exceed 100,000 under the
1997 Employee Plan. No options or Restricted Shares may be
granted under the 1997 Employee Plan after January 2, 2007.
If an option expires or is terminated or canceled
unexercised as to any shares, such released shares may again
be optioned (including a grant in substitution for a
canceled option).
Each option is for such term of not more than ten
years as shall be determined by the Committee at the date of
the grant. Each option becomes exercisable in such
installments, at such time or times, and may be subject to
such conditions, including conditions based upon the
performance of the Company, as the Committee may in its
discretion determine at the date of grant. The Committee may
accelerate the exercisability of any option or, at any time
before the expiration or termination of an option previously
granted, extend the terms of such option for such additional
period as the Committee, in its discretion, shall determine,
except that the aggregate option period with respect to any
option, including the original term of the option and any
extensions thereof, shall never exceed ten years. All
employees are eligible to participate in the 1997 Employee
Plan.
The Committee may permit the purchase price for shares
purchased upon exercise of an option to be paid, all or in
part, by the delivery to the Company of other shares of
Common Stock in such circumstances and manner as the
Committee may specify, valued at the fair market value of
the Common Stock at the close of business on the date
preceding the date of exercise.
If the employment or tenure as a director of any
optionee with the Company is terminated for any reason other
than death, permanent disability, retirement or cause, such
optionee's option, to the extent the option is exercisable
at the date of termination, shall expire thirty days after
the termination of employment or directorship (or upon the
scheduled termination of the option, if earlier). In the
event of termination of employment or directorship because
of death or permanent disability, the option may be
exercised in full, unless otherwise provided at the time of
grant, without regard to any installments established at the
time of grant, by the optionee or, if he is not living, by
his heirs, legatees, or legal representative, during its
specified term prior to one year after the date of death or
permanent disability. In the event of termination of
employment or directorship because of retirement, the option
may be exercised by the optionee (or, if he dies within
three months after such termination, by his heirs, legatees,
or legal representative), at any time during its specified
term prior to three months after the date of such
termination, but only to the extent the option was
exercisable at the date of such termination. If an optionee
is discharged for cause, his option shall expire forthwith
and all rights to purchase shares under it shall terminate
immediately. For this purpose, "discharge for cause" means a
discharge on account of dishonesty, disloyalty or
insubordination.
No option is transferable by the optionee otherwise
than by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order, and each
option shall be exercisable during an optionee's lifetime
only by him.
At the time of grant of Restricted Shares, one or more
certificates representing the number of shares of Common
Stock granted to an individual shall be registered in such
individual's name or for such individual's benefit either
individually or collectively with others. The certificates
shall be held by the Company for the account of the
individual. The individual shall have other rights of a
holder as to such shares of Common Stock including the right
to vote such shares and the right to receive cash dividends
declared and paid to holders of Common Stock. The individual
shall not be entitled to receive the certificates
representing the shares of Common Stock subject to the grant
of Restricted Shares until the restrictions with respect to
the Restricted Shares have lapsed. If a dividend is paid in
shares of Common Stock, such shares of Common Stock shall be
held by the Company subject to the same restrictions as the
Restricted Stock that is the basis of the stock dividend.
None of the Restricted Shares may be sold, transferred,
assigned, pledged or otherwise encumbered or disposed of
during the period in which restrictions apply. Except to the
extent the individual's employment is terminated by reason
of death, permanent disability or retirement (as defined in
the 1997 Employee Plan), Restricted Shares shall be
forfeited and all rights of the individual with respect to
Restricted Shares shall terminate without further obligation
of the Company in the event the individual granted the
Restricted Shares does not remain in the continuous
employment of the Company for the entire Restricted Period.
At the end of the Restricted Period, all restrictions
shall lapse as to the Restricted Shares and one or more
certificates for the appropriate number of shares of Common
Stock shall be delivered to the individual, unless the
Committee, in its sole discretion, has authorized the
individual, at his request, to defer the receipt of all or
any portion of the Restricted Shares in accordance with the
terms of the 1997 Employee Plan.
The Board of Directors may amend or discontinue the
1997 Employee Plan at any time. However, no such amendment
or discontinuation shall (a) change or impair any option
previously granted without the consent of the optionee, (b)
increase the maximum number of shares which may be purchased
by all optionees, (c) change the minimum purchase price, (d)
change the limitations on the option period or increase the
time limitations on the grant of options, or (e) permit the
granting of options to members of the Committee.
Federal Tax Consequences of Options. No gain or loss
will be recognized to an optionee upon the grant of an
option under the 1997 Employee Plan, but upon exercise of
the option ordinary income measured by the excess of the
fair market value of the shares acquired over the option
price will be recognized to the optionee. The Company will
be entitled to a deduction equal to the amount of ordinary
income recognized to the optionee. An optionee's basis in
shares acquired upon the exercise of an option will be equal
to the option price plus the amount of ordinary income
recognized to the optionee. An optionee's holding period
begins on the date on which the option is exercised.
Federal Tax Consequences of Restricted Share Grants.
Under existing federal income tax law, no income will be
recognized by the individual to whom Restricted Shares have
been granted at the time of the Restricted Shares award.
Upon the expiration of the Restricted Period, the individual
will be required to treat as ordinary income the fair market
value of the stock and the Company will be entitled to a
deduction in such amount, subject to the potential effect of
the $1 million deduction limit imposed by Section 162 (m) of
the Code. See "Compensation Compensation and Stock Option
Committee Report Policy with Regard to $1 Million Deduction
Limit."
No Options or Restricted Shares have been granted
under the 1997 Employee Plan as of the date of this proxy
statement.
APPROVAL OF AGREEMENTS WITH RICHARD C. JELINEK
Summary
On January 20, 1997, Richard C. Jelinek, the founder,
former Chief Executive Officer, and current Chairman of the
Board of the Company, and the Boston Safe Deposit and Trust
Company of California, as trustee under the Richard C.
Jelinek Charitable Remainder Unitrust dated August 3, 1993
(the "Trust"), entered into agreements, effective as of
January 2, 1997 (the "Agreements"), pursuant to which Mr.
Jelinek agreed to sell to the Company 550,000 (or
approximately 8.6% of the outstanding) shares of Common
Stock and 275 shares of Voting Preferred Stock of the
Company and the Trust agreed to sell to the Company 450,000
(or approximately 7.0% of the outstanding) shares of Common
Stock and 225 shares of Voting Preferred Stock of the
Company. Immediately before consummation of these purchases,
Mr. Jelinek will exercise his stock option (the "Jelinek
Option") to purchase 500 shares (representing all of the
authorized shares) of Voting Preferred Stock of the Company
for an aggregate exercise price of $500,000 and after this
exercise, he will immediately transfer 225 of these shares
to the Trust.
The Company's certificate of incorporation provides
that prior to May 31, 1998, the holders of the Voting
Preferred Stock will be entitled to 44,000 votes per share,
and after May 31, 1998 to 220 votes per share, on all
matters to be voted upon by stockholders. Holders are also
entitled to quarterly dividends at an annual rate equal to
two percentage points below the prime rate of The First
National Bank of Chicago in effect as of the prior May 31.
In the event of any liquidation, dissolution or winding up
of the Company, holders of the Voting Preferred Stock are
entitled to receive out of assets available for distribution
to stockholders the sum of $1,000 per share plus any
accumulated and unpaid dividends. After May 31, 1998, the
Voting Preferred Stock may be redeemed at the option of the
Company at a redemption price equal to $1,000 per share plus
any accumulated but unpaid dividends. The Voting Preferred
Stock has no preemptive, conversion or exchange rights.
As a result of the voting rights of the Company's
Voting Preferred Stock, following exercise by Mr. Jelinek of
the Jelinek Option to purchase 500 shares of Voting
Preferred Stock, he and the Trust will be able to cast
approximately 84% of the votes on any matter submitted to
the stockholders of the Company and thus will be able to
control the Company.
In consideration for the sale of Common Stock and
Voting Preferred Stock by Mr. Jelinek and the Trust to the
Company, the Company will pay in the aggregate to Mr.
Jelinek and the Trust $4,500,000 in cash, $2,000,000 in 8%
promissory notes maturing in two equal installments at the
end of one year and two years from the date of issuance, and
five-year Stock Exchange and Subscription Warrants (the
"Warrants") to purchase from the Company 400,000 shares of
Common Stock at a price of $8.00 per share, with the Company
having the right to require payment at the time of exercise
in either cash or shares of Common Stock valued at their
then fair market value.
Consummation of the Agreements is subject to approval
by the stockholders of the Company.
Except for Mr. Jelinek, who did not vote, the Board
unanimously approved the Agreements. Each of the directors
other than Mr. Jelinek has indicated his or her intention to
vote shares owned by him or her in favor of the
transactions. Mr. Jelinek has agreed to vote shares owned by
him in favor of the transactions in at least the same
proportion as other stockholders voting on the transactions.
Background and Reasons for Board Action
The Agreements are the result of unsolicited,
arms-length negotiations initiated by Management of the
Company between and among Management, representatives of the
Board and Mr. Jelinek. In the opinion of the Company's Board
of Directors, the Agreements are fair and reasonable and in
the best interest of the Company and its stockholders.
The Company adopted a plan to repurchase 800,000
shares of Common Stock in July 1994, and has from time to
time purchased its shares of Common Stock in the open market
and in privately negotiated transactions. The Board believes
that these purchases have been good investments considering
the purchase price paid for the shares and the underlying
value attributable by the Board to these shares. The number
of shares included in the Company's announced buyback plan
was based primarily on the then outstanding employee stock
options, although at that time and subsequent to that time
the Board believed that given the assets and prospects of
the Company, it would be in the interest of the Company and
its stockholders to buy back up to 1,000,000 shares. The
Company was, however, prevented from pursuing its buyback
plan for two reasons. First, whenever an attempt was made to
purchase shares, the purchases by the Company appeared to
influence the price of the stock, and the Company concluded
that it would be unable to purchase a substantial number of
shares at current market prices in an orderly and systematic
manner. Second, any shares purchased by the Company would be
"tainted shares" under generally accepted accounting
principles, and the holding of these tainted shares would in
most cases limit the Company's ability to either acquire or
be acquired by another company in a "pooling of interests"
transaction. Since it is desirable in the Company's industry
to utilize "pooling of interests" accounting, the Company
concluded that it was not in its best interest to purchase a
relatively small number of shares at current market prices
without any assurance that it could acquire the relatively
large number of shares that it desired to purchase. At the
same time, the Company believed that its so-called "float"
of publicly traded shares (the shares held by persons other
than insiders) was already smaller than desirable, and thus
any repurchases of shares in the public market would
exacerbate this problem.
During 1996, it also became apparent to the Board that
the objectives of Mr. Jelinek and the other members of the
Board of Directors of the Company were not identical. During
most of that year, the Company was engaged in discussions
through Mr. Jelinek as Chairman of the Board with various
companies expressing a desire to acquire all or part of the
Company. Certain Board members expressed their belief that
these discussions were not in the best interest of the
Company and that the stockholders and the Company would
benefit from a period of uninterrupted focus on the
Company's operations. Mr. Jelinek expressed his point of
view that remaining an independent company entailed more
risk (with a greater potential return) than selling to or
merging with a bigger company and he questioned whether it
would be wise for him, with such a significant part of his
net worth tied up in the Company, to take this risk.
In this context, the Board examined various
alternatives. All discussions with potential acquirers of
the Company had ended without consummation and the Board
concluded that the negative impact on "pooling of interests"
transactions was less important than the Company's business
objective of acquiring more of its outstanding shares
coupled with eliminating the majority voting control held by
Mr. Jelinek.
The Board also concluded that because Mr. Jelinek was
no longer involved in the day-to-day management, it was no
longer appropriate that he continue to serve as Chairman of
the Board. The Board did, however, wish to have Mr.
Jelinek's ongoing advice and counsel as a continuing member
of the Board of Directors.
Negotiations began in earnest between Management and
representatives of the Board and Mr. Jelinek following a
Board meeting held on October 30, 1996. At that meeting, the
Board appointed a Special Committee of the Board consisting
of all members of the Board except Mr. Jelinek to negotiate
and finalize a transaction. On December 5, 1996, Mr. Jelinek
traveled to Chicago from Colorado and William G. Brown (one
of the Company's directors) traveled to Chicago from Florida
to meet with Mr. Sommers (the Company's Chief Executive
Officer) to attempt to finalize the principal terms of the
proposed transactions. At this meeting, Messrs. Sommers,
Jelinek and Brown reached agreement on the principal terms
of the transactions as described herein. After the
conclusion of the meeting with Mr. Jelinek, Messrs. Sommers
and Brown contacted each of the remaining directors (other
than Mr. McNerney) on December 5th. Each of the other
directors approved the principal terms of the transactions,
subject to (i) advice of legal counsel and review of
definitive documentation, (ii) receipt of a fairness opinion
from an investment banking firm, and (iii) approval by
stockholders.
The Special Committee retained the investment banking
firm of Punk, Ziegel & Knoell on December 16th, and a
proposed form of agreement was presented to the Special
Committee and the Board on January 2, 1997. In arriving at
an agreement with Mr. Jelinek and the Trust, the Board was
influenced by the underlying value of the Company, the
current value of Mr. Jelinek's voting control of the
Company, his willingness to accept payment in a combination
of cash, promissory notes and warrants, his willingness to
enter into a binding transaction subject to stockholder
approval, the difficulty and timing in purchasing shares
from any other stockholder or stockholders for a
consideration other than cash, Mr. Jelinek's unwillingness
to sell the shares of Common Stock and the Voting Preferred
Stock he has a right to purchase under the Jelinek Option
for less than the price which he finally accepted, and
advice and counsel received from Punk, Ziegel & Knoell
relating to the fairness of the proposed transaction from a
financial point of view, including those portions of the
purchase price which might be deemed to be attributable to
the control represented by the Voting Preferred Stock and
the Common Stock to be acquired. See "Fairness Opinion."
This proposal was approved by the Special Committee and the
Board on January 2, 1997 and the Agreements were executed
and delivered by all parties on January 20, 1997.
The Company currently expects to fund the cash portion
of the purchase price and payments under the promissory
notes from cash on hand and the proceeds from sales of
short-term investments. The Company believes it has, and
will have, sufficient financial resources including cash on
hand and cash generated from operations, to meet its
ordinary capital needs for the foreseeable future as well as
to fund the payments required under the Agreements.
Opinion of Financial Advisor
The Company retained Punk, Ziegel & Knoell to render
an opinion on whether the transactions with Mr. Jelinek are
fair, from a financial point of view, to the Company and its
shareholders (other than Mr. Jelinek).
Punk, Zeigel & Knoell has delivered a written opinion
to the Board, confirming oral advice rendered at the time of
the January 2, 1997 Board meeting, that the transaction is
fair from a financial point of view to the Company and its
shareholders. In connection with its oral advice and
opinion, Punk, Ziegel & Knoell, among other procedures,
reviewed the Company's publicly available annual and
quarterly financial statements for the fiscal years
1994-1996, reviewed the trading history and the market for
the Company's Common Stock and discussed the business and
prospects of the Company with certain officers of the
Company. The discussion of the Company's business and
prospects included a review of certain forecasts of revenues
and expenses for the fiscal years 1997 to 2000 previously
prepared by management of the Company and provided by
management to Punk, Ziegel & Knoell. In performing its
analysis, Punk, Ziegel & Knoell created a conservative case
in which it adjusted (i) the Company's revenues and expenses
for fiscal year 1996 to represent only continuing
operations, and (ii) the Company's projected net margins for
fiscal years 1999 and 2000, with such assumptions based on
its examination of average net margins for comparable
companies. None of the information received was
independently verified by Punk, Ziegel & Knoell. No
instructions were received by Punk, Ziegel & Knoell from the
Company with respect to its oral advice or opinion, nor were
any limitations imposed on the scope of its investigation. A
copy of Punk, Ziegel & Knoell's written opinion is attached
as Exhibit F to this proxy statement. The full text of the
written opinion, which sets forth, among other things, the
assumptions made, matters considered, and limitations of the
review undertaken in connection with the opinion, should be
read carefully in its entirety.
Punk, Ziegel & Knoell is a recognized investment
banking firm which regularly engages in the valuation of
businesses and their securities in connection with mergers
and acquisitions, underwritings and private placements as
well as valuations for estate, corporate and other purposes.
Punk, Ziegel & Knoell will receive a fee of $125,000
for rendering the opinion referred to above. Such fee is not
conditioned or dependent in any way upon consummation of the
proposed transactions between the Company and Mr. Jelinek.
The Company has agreed to reimburse Punk, Ziegel & Knoell
for out-of-pocket expenses, and has also agreed to indemnify
Punk, Ziegel & Knoell against certain liabilities, including
liabilities under the federal securities laws.
Punk, Ziegel & Knoell, L.P. does not beneficially own
shares of the Common Stock. Argyle Capital Partners, L.P.,
an independent investment partnership in which William J.
Punk, Managing Director of Punk, Ziegel & Knoell, is a
General Partner and fund manager, owns 11,000 shares of the
Common Stock. Punk, Ziegel & Knoell has acted as a market
maker in the Common Stock and plans to continue to so act.
Punk, Ziegel & Knoell was co-manager of the Company's second
public offering in October 1993; it has not otherwise been
retained to perform investment banking services for the
Company or Mr. Jelinek in the past.
Terms of the Agreements
Each of Mr. Jelinek and the Trust has executed
substantially identical Agreements. A copy of Mr. Jelinek's
Agreement (with differences from the Trust's Agreement noted
thereon) is attached hereto as Exhibit E, and the following
description is qualified in its entirety by reference to the
Agreement. Pursuant to the Agreements, the Company has
agreed to purchase, and Mr. Jelinek and the Trust have
agreed to sell to the Company, an aggregate of 1,000,000
shares of Common Stock (representing approximately 15.6% of
the currently outstanding Common Stock) and 500 shares of
Voting Preferred Stock (representing 100% of the authorized
Voting Preferred Stock). The Company will pay to Mr. Jelinek
and the Trust an aggregate of $4,500,000 in cash, $2,000,000
in promissory notes, and Stock Exchange and Subscription
Warrants (the "Warrants") to purchase from the Company
400,000 shares of Common Stock at a price of $8.00 per
share, with the Company having the right to require payment
at the time of exercise in either cash or shares of Common
Stock valued at their then fair market value. Mr. Jelinek
will resign as Chairman of the Company (though he will
remain a director). Mr. Jelinek will continue to own 837,800
shares (approximately 15.5%) of the outstanding Common Stock
after completion of the transactions contemplated by the
agreements. The shares covered by the Warrants would
represent approximately 6.8% of the outstanding Common Stock
if exercised in full. The Agreements provide that Mr.
Jelinek and the Trust will each have the right to one demand
registration and one piggyback registration with respect to
the shares covered by the Warrants.
The promissory notes will bear interest at the rate of
8% per annum, payable monthly. They will mature as to 50% of
their principal amount one year from their issuance, and as
to the remaining outstanding principal amount two years from
their issuance. The Warrants will be exercisable for a
period of five years from their date of issuance. The
Company may require that the exercise price of the Warrants
be paid, in whole or in part, by delivery of mature shares
of Common Stock (valued for such purposes, in most cases, at
the average of the closing sale price of the Common Stock
for the 30 calendar days preceding exercise).
The Agreements contain a number of restrictions on the
activities of Mr. Jelinek and the Trust with respect to the
Company and the Common Stock. Mr. Jelinek and the Trust have
agreed that they will not sell any shares of Common Stock
held by them without the consent of the disinterested
members of the Board for a period of five years, provided
that such restrictions lapse as to 20% of such shares on
each anniversary of the Agreement. Mr. Jelinek and the Trust
have also agreed that they will not take certain other
actions for a period of five years, including acquiring
additional voting securities of the Company (other than upon
exercise of a Warrant), engaging in a proxy contest,
participating in a tender offer, become part of a "group"
for purposes of Section 13(d) under the Securities Exchange
Act of 1934, or otherwise attempting to influence or control
the Company other than through the performance of Mr.
Jelinek's duties as a director in the ordinary course. As
part of the registration rights granted under the
Agreements, the Company has agreed to indemnify Mr. Jelinek
and the Trust against certain liabilities, including
liabilities under the securities laws, in connection with
the registration of shares of Common Stock acquired upon
exercise of the Warrants.
Each party's obligations to consummate the
transactions contemplated by the Agreements are subject to
the condition that the Agreements be approved by
stockholders.
Ownership by Mr. Jelinek Following Transactions
Prior to the closing of the proposed transactions, Mr.
Jelinek and the Trust will own beneficially 1,837,900 shares
(or approximately 28.4%) of the outstanding Common Stock
(excluding 100,000 shares owned by Mr. Jelinek's wife). Upon
exercise of the Jelinek Option immediately prior to closing
the proposed transactions, Mr. Jelinek will own 500 shares
(or 100%) of the outstanding Voting Preferred Stock of which
he will immediately transfer 225 shares (or 45%) to the
Trust. As a result of the voting rights of the Company's
Voting Preferred Stock, following exercise by Mr. Jelinek of
the Jelinek Option, he and the Trust will be able to cast
approximately 84% of the votes on any matter submitted to
the stockholders of the Company and thus will be able to
control the Company.
Following the closing of the proposed purchase by the
Company of 1,000,000 shares of Common Stock and 500 shares
of Voting Preferred Stock, Mr. Jelinek will own 837,900
shares (or approximately 15.5%) of the outstanding Common
Stock, the Trust will not own any shares of Common Stock,
and no shares of Voting Preferred Stock will be outstanding.
Mr. Jelinek's wife owns 100,000 shares (or approximately
1.56% before the proposed transactions and 1.85% following
the proposed transactions) of the Common Stock.
Tax and Accounting Treatment of Proposed Transactions
The Company understands that upon the exercise of the
Jelinek Option, ordinary income, measured by the excess of
the fair market value of the shares acquired over the option
price, will be recognized to Mr. Jelinek. The Company will
be entitled to a deduction equal to the amount of ordinary
income recognized to Mr. Jelinek. Mr. Jelinek's basis in
shares of Voting Preferred Stock acquired upon the exercise
of his options will be equal to the option exercise price of
$1,000 per share plus the amount of ordinary income
recognized by Mr. Jelinek. Mr. Jelinek's holding period for
the Voting Preferred Stock will begin on the date on which
the option is exercised.
The Company understands that under generally accepted
accounting principles, it will be required to record a
charge to expense of approximately (i) $1,000,000,
representing the difference between the fair market value of
the 500 shares of Voting Preferred Stock to be acquired by
the Company and Mr. Jelinek's $500,000 option exercise
price; and (ii) $319,000, representing the difference
between the value of the Stock Exchange Warrants, cash and
notes to be paid to Mr. Jelinek and the Trust in
consideration for the 1,000,000 shares of Common Stock to be
purchased and the last reported sale price of the Company's
Common Stock on December 5, 1996, the day on which the
principal terms of the transaction were agreed to by the
parties.
The repurchase by the Company of 1,000,000 shares of
Common Stock and 500 shares of Voting Preferred Stock will
significantly limit the Company's ability to participate in
a business combination utilizing the "pooling of interests"
method of accounting for a period of two years after the
closing of the proposed transactions.
Historical Financial Information
The financial statements of the Company for the year
ended May 31, 1996 and 1995, the related Report of
Independent Accountants, and Management's Discussion and
Analysis of Results of Operations and Financial Condition
for the fiscal years 1994 through 1996, which appear in the
Company's 1996 Annual Report, copies of which are being sent
to the stockholders of the Company concurrently with this
proxy statement, are incorporated by reference in this proxy
statement. The financial statements of the Company for the
three- and six-month periods ended August 31 and November
30, 1996, which appear in the Company's quarterly reports on
Form 10-Q for the periods ended on such dates are also
incorporated by reference in this proxy statement.
Certain Financial Effects of the Proposed Transactions with
Richard C. Jelinek
The last reported sale price of the Common Stock on
December 5, 1996, the date on which all of the principal
terms of the transactions were agreed to by the parties, was
$5.625. Based on this publicly reported fair market value of
the Company's Common Stock and other factors deemed
relevant, Punk, Ziegel & Knoell has advised the Company that
the Warrants, if issued on December 5, 1996, would in their
opinion have an aggregate value of $944,000. The Board of
Directors of the Company, based on analyses made by Punk,
Ziegel & Knoell and other factors which it deemed relevant,
has also determined that the fair market value of the Voting
Preferred Stock to be purchased is $1,500,000. Based on
these values, the total purchase price to be paid by the
Company is $7,444,000, of which $1,500,000 represents the
fair market value of the Voting Preferred Stock, and the
remaining $5,944,000 is the amount allocated to the Common
Stock being acquired. The excess of these amounts over the
exercise price of the Voting Preferred Stock and the market
price of the Common Stock on December 5, 1996 ($1,000,000
and $319,000, respectively) may be deemed to be a payment
attributable to the control represented by the Voting
Preferred Stock and the Common Stock being acquired,
respectively. See "Background and Reasons for Board Action."
The following pro forma analysis is based on these
values. The following pro forma information may not be
indicative of the results that actually would have occurred
if the transactions had occurred on the date indicated, or
which may be obtained in the future. The following pro forma
information should be read in conjunction with the
historical financial information incorporated in this proxy
statement by reference.
Net Income
The proposed purchase of shares by the Company would
have increased the Company's fiscal 1996 net loss per share
of Common Stock on a pro forma basis. Set forth below, among
other data, are the Company's reported and pro forma net
income/(loss) per share for the year ended May 31, 1996, and
for the six months ended November 30, 1996, assuming the
shares had been purchased and the payments had been made
under the terms of the Agreements as of June 1, 1995.
Included in the following pro forma computations are
interest expense on the notes ($160,000 for the year ended
May 31, 1996, and $40,000 for the six months ended November
30, 1996), foregone interest income relating to the cash
payments ($172,000 for the year ended May 31, 1996, and
$106,000 for the six months ended November 30, 1996), and
related income tax benefits ($132,800 for the year ended May
31, 1996, and $58,400 for the six months ended November 30,
1996).
<TABLE>
<CAPTION>
Year Ended Six Months Ended
May 31, 1996 Nov. 30, 1996
Reported Pro Forma Reported Pro Forma
<S> <C> <C> <C> <C>
Net income/(loss)........................... $ (3,725,991) $ (3,925,191) $ 503,790 $ 416,190
Net income/(loss) per share (primary)....... $ (0.57) $ (0.71) $ 0.08 $ 0.08
Weighted average common and common
equivalent shares outstanding............ 6,539,988 5,539,988 6,485,121 5,485,121
</TABLE>
Book Value
The following table shows, as of May 31 and November
30, 1996, the reported and pro forma book value per share
and other financial information assuming on June 1, 1995,
the shares had been purchased and the payments had been made
under the terms of the Agreements. Because of the payments
to be made in connection with the proposed transactions, pro
forma current assets decreased by the cash consideration to
be paid ($4.5 million), estimated costs of consummating the
transaction ($300,000), cash payments for debt service and
interest ($1,160,000 at May 31, 1996 and $1,200,000 at
November 30, 1996), and foregone interest income relating to
cash payments ($172,000 at May 31, 1996 and $278,000 at
November 30, 1996) offset by cash received upon exercise of
the Jelinek Option ($500,000) and the increase in the
Company's prepaid income taxes ($532,800 at May 31, 1996 and
$591,200 at November 30, 1996). Current liabilities
increased by the debt assumed ($2 million at June 1, 1995),
less debt service payments ($1 million at May 31, 1996 and
November 30, 1996). Stockholders' equity decreased by the
decrease in pro forma net income discussed previously. In
addition to the pro forma net income adjustments, the
following pro forma presentation includes the one-time
charge of $1.319 million ($919,000 after tax), estimated
costs of consummating the transaction ($300,000), the cost
of Common Stock repurchased ($5,625,000) and the issuance of
the Warrants ($944,000).
<TABLE>
<CAPTION>
Balance as of Balance as of
May 31, 1996 Nov. 30, 1996
Reported Pro Forma Reported Pro Forma
<S> <C> <C> <C> <C>
Working capital:
Current assets......................... $ 22,151,060 $ 17,051,860 $ 21,270,426 $ 16,083,626
Current liabilities.................... $ 9,578,323 $ 10,578,323 $ 8,503,516 $ 9,503,516
Working capital........................ $ 12,572,737 $ 6,473,537 $ 12,766,910 $ 6,580,110
Capitalization:
Stockholders' equity................... $ 18,201,237 $ 12,102,037 $ 18,790,236 $ 12,603,436
Number of shares outstanding........... 6,456,447 5,456,447 6,469,246 5,469,246
Total book value per share............. $2.82 $2.22 $2.90 $2.30
</TABLE>
Other Financial Effects
The consummation of the proposed transactions with Mr.
Jelinek will significantly limit the Company's ability to
participate in a business combination utilizing the "pooling
of interests" method of accounting for business combinations
for a period of two years after the closing of the proposed
transactions. The Company believes that its inability to use
"pooling of interests" accounting during that period will
not have a materially adverse impact on its future plans.
The Company has not paid any dividends on its Common
Stock since the Distribution. It is the present policy of
the Board of Directors to retain all earnings to support the
growth of the Company's business. Accordingly, it is
expected that no cash dividends will be paid to holders of
Common Stock in the foreseeable future. Any payment of
dividends in the future is dependent upon the financial
condition, capital requirements and earnings of the Company
and such other factors as the Board of Directors deems
relevant.
Other Information Concerning the Proposed Transactions with
Richard C. Jelinek
Because the reported transactions with Mr. Jelinek
involve a substantial expenditure of the Company's funds and
involve a transaction with a director of the Company who is
a substantial stockholder, and in accordance with the
policies of the Nasdaq National Market, Management and the
Board of Directors believe that stockholders should be given
the opportunity to vote on the proposed transactions. Unless
the holders of a majority of the votes represented in the
Annual Meeting and voting on the proposal authorize it, the
Company will not consummate the proposed transactions with
Mr. Jelinek. Under the Company's Certificate of
Incorporation and its By-Laws, and under Delaware law,
however, the Company has the power to purchase shares of its
Common Stock to the extent of unreserved and unrestricted
retained earnings as long as no purchase or payment is made
at a time when the Company's capital is impaired or the
purchase or payment would cause an impairment of the
Company's capital. The aggregate purchase price will not
exceed the Company's total equity and the Company's capital
is not impaired, nor will purchase of or payment for the
shares cause an impairment of the Company's capital.
Due to his ownership of Common Stock and the Jelinek
Option, Mr. Jelinek has, and if the transactions are not
approved, will continue to have, the effective ability to
control the Company, including the ability to remove
directors, elect new directors and cause or prevent any
merger, sale of business or other transaction which might
result in a change in control of the Company. While Mr.
Jelinek will continue to own approximately 15.5% of the
Common Stock after completion of the transactions, he will
no longer have the ability to prevent change in control
transactions or otherwise control the Company. While the
removal of Mr. Jelinek's control ability might make an
acquisition proposal from a third party more likely, the
inability to achieve control of the Company through Mr.
Jelinek, together with the limitations under the agreements
or Mr. Jelinek's ability to sell his shares and take certain
other actions, might make certain of such proposals less
likely. In addition, the inability of a potential acquirer
to account for an acquisition as a pooling of interests
during the two years following the proposed transactions may
also make future third party acquisition proposals less
likely.
As of December 6, 1996, directors and officers of the
Company as a group, including Mr. Jelinek, beneficially
owned 2,758,058 shares of Common Stock of the Company, or
approximately 40.9% of the shares outstanding. If the
proposed transactions with Mr. Jelinek are consummated, the
percentage of ownership of the directors and officers will
be approximately 30.6%. Mr. Jelinek, as a result of his
continuing ownership of approximately 15.5% of the Common
Stock. will remain the Company's largest stockholder after
completion of the proposed transactions, and as a result,
will continue to have the ability to significantly influence
the Company's actions.
Vote Required
Approval of the transactions with Mr. Jelinek requires
the affirmative vote of a majority of the votes represented
at the Annual Meeting and voting on the proposal.
Abstentions will have the effect of a vote against approval;
non-voted shares will have no effect. Mr. Jelinek, who
currently owns approximately 28.4% of the outstanding Common
Stock, has agreed to vote his shares of Common Stock in
favor of the transactions in at least the same proportion as
other shareholders. Therefore, if a majority of the shares
held by stockholders other than Mr. Jelinek and represented
at the Annual Meeting are voted in favor of the
transactions, they will be approved. In addition, Mr.
Jelinek could decide to vote up to all of his shares in
favor of the transactions. This would have the effect of
reducing the number of votes required from other
stockholders to secure approval. As of the date of mailing
of this proxy statement, Mr. Jelinek had not determined
whether he would vote any more of his shares in favor of
approval than will be required under the Agreements. While
there are no contractual restrictions on Mr. Jelinek's
ability to exercise his option with respect to the Voting
Preferred Stock or his ability to vote such shares, Mr.
Jelinek has indicated the he will not vote any Voting
Preferred Stock with respect to the transactions. In light
of this decision by Mr. Jelinek, and the fact that the
Board's decision to seek stockholder approval of the
transactions was not legally required, the Board determined
that no limitations on Mr. Jelinek's right to vote his
Common Stock, other than as set forth in the agreements, was
appropriate.
MARKET PRICE OF COMMON STOCK
The reported high and low prices of the Company's
Common Stock on the Nasdaq National Market on a fiscal
quarter basis for the periods indicated were as follows:
High Low
Fiscal Year Ended May 31, 1996
Fourth Quarter 9 5 1/4
Fiscal Year Ending May 31, 1997
First Quarter 6 1/2 4 3/4
Second Quarter 6 5/16 4 1/2
Third Quarter (through
February 12, 1997) 7 1/2 4 3/8
On December 5, 1996, the day on which the principal
terms of the proposed transactions were agreed upon, the
closing price of the Common Stock was $5.625. On January 2,
1997, the day of the meeting of the Board of Directors at
which Punk, Ziegel & Knoell rendered their opinion on the
fairness of the proposed transactions and at which the Board
approved the form of definitive agreements, the closing
price of the Common Stock was $5.00. On February 12, 1997,
the closing price of the Common Stock was $6.00.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP has been selected by the Board of
Directors, upon the recommendation of its Audit Committee,
to continue to act as the Company's independent accountants
in fiscal 1997. A representative of Price Waterhouse LLP
will be present at the Annual Meeting. He will have the
opportunity to make a statement, if he desires to do so, and
will be available to respond to appropriate questions.
ANNUAL REPORT
The Company has enclosed its Annual Report for the
fiscal year ended May 31, 1996 with this proxy statement.
Stockholders are referred to this report for financial and
other information about the Company, but such report (other
than the financial statements and other portions of the
Annual Report specifically referred to under the caption
"Approval of Agreements with Richard C. Jelinek Historical
Financial Information") is not incorporated in this proxy
statement and is not a part of the proxy soliciting
material.
INFORMATION INCORPORATED BY REFERENCE
The financial statements of the Company for the three-
and six-month periods ended August 31 and November 30, 1996,
which appear in the Company's quarterly reports on Form 10-Q
for the periods ended on such dates, are incorporated by
reference in this proxy statement. Stockholders may obtain
copies of such quarterly reports on Form 10-Q upon oral or
written request to Medicus Systems Corporation, Attention:
Chief Financial Officer, One Rotary Center, Evanston,
Illinois, 60201, telephone (847) 570-7500.
PROPOSALS BY STOCKHOLDERS
Any proposals by stockholders intended to be presented
at the 1997 Annual Meeting must be received by the Company
no later than June 30, 1997.
OTHER MATTERS
Brokerage firms, banks, fiduciaries, voting trustees
or other nominees will be requested to forward the
soliciting material to each beneficial owner of stock held
of record by them, and the Company will, upon request,
reimburse them for the reasonable expense of doing so. The
entire cost of the solicitation will be borne by the
Company.
The Board of Directors does not intend to present, and
does not have any reason to believe that others will
present, any item of business at the Annual Meeting other
than those specifically set forth in the notice of the
meeting. However, if other matters are properly presented
for a vote, the proxies will be voted with respect to such
matters in accordance with the judgment of the persons
acting under the proxies.
By Order of the Board of Directors
William G. Brown
Secretary
<PAGE>
EXHIBIT A
MEDICUS SYSTEMS CORPORATION
1996 C.E.O. REPLACEMENT STOCK OPTION PLAN
The purpose of the 1996 C.E.O. Replacement Stock
Option Plan (the "Replacement Plan") is to benefit the
Company through the maintenance and development of
management by offering certain present and future executive
and key personnel a favorable opportunity to become
stockholders in the Company over a period of years, thereby
giving them a permanent stake in the growth and prosperity
of the Company and encouraging the continuance of their
services with the Company. Options granted under the
Replacement Plan are intended not to qualify as "Incentive
Stock Options" as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), and the Plan
shall be construed so as to carry out that intention.
1........Administration. The Replacement Plan shall be
administered by a committee (the "Committee") of the Board
of Directors composed of no fewer than two "disinterested"
"outside" directors designated by the Board of Directors.
For purposes of the Replacement Plan, (a) "disinterested"
directors shall include directors who meet the tests for
"disinterested administration" of the Replacement Plan under
the rules and regulations adopted by the Securities and
Exchange Commission under Section 16 of the Securities
Exchange Act of 1934 and (b) "outside" directors shall
include directors who meet the tests for "outside director"
under the regulations adopted by the Internal Revenue
Service relating to Section 162 of the Code, including all
of the transition rules thereunder. A majority of the
Committee shall constitute a quorum, and the acts of a
majority of the members present at any meeting at which a
quorum is present, or acts approved in writing by all of the
members, shall be the acts of the Committee. This
Replacement Plan is intended to qualify for exemption from
Section 16(b) of the Securities Exchange Act of 1934 and to
qualify as performance-based compensation under Section 162
of the Code and shall be interpreted in such a way as to
result in such qualification.
Subject to the provisions of the Replacement Plan, the
Committee shall have full and final authority, in its
absolute discretion, (a) to determine the persons to be
granted options under the Replacement Plan, (b) to determine
the number of shares subject to each option, (c) to
determine the time or times at which options will be
granted, (d) to determine the option price of the shares
subject to each option, which price shall not be less than
the minimum specified in Section 4 of the Replacement Plan,
(e) to determine the time or times when each option becomes
exercisable and the duration of the exercise period, (f) to
prescribe the form or forms of the agreements evidencing any
options granted under the Replacement Plan (which forms
shall be consistent with the Replacement Plan), (g) to
adopt, amend and rescind such rules and regulations as, in
the Committee's opinion, may be advisable in the
administration of the Replacement Plan, and (h) to construe
and interpret the Replacement Plan, the rules and
regulations and the agreements evidencing options granted
under the Replacement Plan and to make all other
determinations deemed necessary or advisable for the
administration of the Replacement Plan. Any decision made or
action taken in good faith by the Committee in connection
with the administration, interpretation, and implementation
of the Replacement Plan and of its rules and regulations
shall, to the extent permitted by law, be conclusive and
binding upon all optionees under the Replacement Plan and
upon any person claiming under or through such an optionee,
and no director of the Company shall be liable for any such
decision made or action taken by the Committee.
2........Eligibility. Options shall be granted only to
key employees and directors (other than members of the
Committee) of the Company.
3........Granting of Options.
(a)The Committee may grant options under which a
total of not more than 400,000 shares of the Common
Stock of the Company may be purchased, subject to
adjustment as provided in paragraph 9. Since the
Replacement Plan is being adopted principally to be
used for the Chief Executive Officer, options to
purchase up to 400,000 shares of the Common Stock
of the Company may be granted to the Chief
Executive Officer but options (including options
made available by cancellation, lapse, or
otherwise) shall not be granted to the same
individual to purchase more than 400,000 shares
hereunder. This Replacement Plan replaces the 1996
C.E.O. Plan of the Company's predecessor, Managed
Care Solutions, Inc., formerly known as Medicus
Systems Corporation, which predecessor C.E.O. Plan
and the options to purchase 350,000 shares granted
thereunder are being terminated on the date of the
adoption of the Replacement Plan and new options
under the Replacement Plan are being granted to
purchase the same number of shares as were subject
to option under the terminated C.E.O. Plan. If the
350,000 options granted to the Chief Executive
Officer under the predecessor C.E.O. Plan and
canceled and replaced with options granted under
the Replacement Plan are deemed to have been
granted pursuant to the Replacement Plan, options
to purchase no more than 750,000 shares of the
common stock of the Company (the 350,000 canceled
options plus the 400,000 available under the
Replacement Plan) shall be deemed to be available
to be granted to the Chief Executive Officer
hereunder.
(b)No options shall be granted under the Replacement
Plan after March 12, 2006. If an option expires or
is terminated or canceled unexercised as to any
shares, such released shares may again be optioned
(including a grant in substitution for a canceled
option). Shares subject to options may be made
available from unissued or reacquired shares of
common stock.
(c)Nothing contained in the Replacement Plan or in
any option granted pursuant thereto shall confer
upon any optionee any right to be continued in the
employment of the Company, or interfere in any way
with the right of the Company to terminate his
employment at any time.
4........Option Price. The option price shall be
determined by the Committee and, subject to the provisions
of paragraph 9, shall be not less than the fair market
value, at the time the option is granted, of the stock
subject to the option.
5........Duration of Options, Increments and
Extensions.
(a)Subject to the provisions of paragraph 7, each
option shall be for such term of not more than ten
years as shall be determined by the Committee at
the date of the grant. Each option shall become
exercisable in such installments, at such time or
times, and may be subject to such conditions,
including conditions based upon the performance of
the Company, as the Committee may in its discretion
determine at the date of grant.
(b)The Committee may in its discretion (i) accelerate
the exercisability of any option or (ii) at any
time before the expiration or termination of an
option previously granted, extend the terms of such
option (including options held by officers) for
such additional period as the Committee, in its
discretion, shall determine, except that the
aggregate option period with respect to any option,
including the original term of the option and any
extensions thereof, shall never exceed ten years.
6........Exercise of Option.
(a)An option may be exercised by giving written
notice to the Company, attention of the Secretary,
specifying the number of shares to be purchased,
accompanied by the full purchase price for the
shares to be purchased in cash or by check, except
that the Committee may permit the purchase price
for the shares to be paid, all or in part, by the
delivery to the Company of other shares of Common
Stock of the Company in such circumstances and
manner as it may specify. For this purpose, the per
share value of the Company's Common Stock shall be
the fair market value at the close of business on
the date preceding the exercise date.
(b)At the time of exercise of any option, the
Committee may, if it shall determine it necessary
or desirable for any reason, require the optionee
(or his heirs, legatees, or legal representative,
as the case may be) as a condition upon the
exercise, to deliver to the Company a written
representation of present intention to purchase the
shares for his own account for investment and an
agreement not to distribute or sell such shares in
violation of the registration provisions of
applicable securities laws. If such representation
and agreement are required to be delivered, an
appropriate legend may be placed upon each
certificate delivered to the optionee upon his
exercise of part or all of the option and a stop
transfer order may be placed with the transfer
agent.
(c)Each option shall also be subject to the
requirement that, if at any time the Committee
determines, in its discretion, that the listing,
registration or qualification of the shares subject
to the option upon any securities exchange or under
any state or federal law, or the consent or
approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in
connection with, the issue or purchase of shares
thereunder, the option may not be exercised in
whole or in part unless such listing, registration,
qualification, consent or approval shall have been
effected or obtained free of any conditions not
acceptable to the Committee.
(d)If the Committee shall determine it necessary or
desirable for any reason, an option shall provide
that it is contemplated that the shares acquired
through the exercise of the option will not be
registered under applicable federal and state
securities laws and that such shares cannot be
resold unless they are registered under such laws
or unless an exemption from registration is
available, and the certificate for any such shares
issued upon the exercise of the option shall bear a
legend making appropriate reference to such
provisions.
7....Termination of Employment-Exercise Thereafter.
(a)If the employment or tenure as a director of any
optionee with the Company is terminated for any
reason other than death, permanent disability,
retirement or cause, such optionee's option, to the
extent the option is exercisable at the date of
termination, shall expire thirty days after the
termination of employment or directorship (or upon
the scheduled termination of the option, if
earlier), and all rights to purchase shares
pursuant thereto shall terminate at such time.
Temporary absence from employment because of
illness, vacation, approved leave of absence, or
transfer of employment shall not be considered to
terminate employment or to interrupt continuous
employment.
(b)In the event of termination of employment or
directorship because of death or permanent
disability (within the meaning of Section 22(e)(3)
of the Code), the option may be exercised in full,
unless otherwise provided at the time of grant,
without regard to any installments established
under paragraph 5 hereof, by the optionee or, if he
is not living, by his heirs, legatees, or legal
representative or alternate payee under a qualified
domestic relations order, as the case may be,
during its specified term prior to one year after
the date of death or permanent disability. In the
event of termination of employment or directorship
because of retirement, the option may be exercised
by the optionee (or, if he dies within three months
after such termination, by his heirs, legatees,
legal representative or alternate payee under a
qualified domestic relations order, as the case may
be), at any time during its specified term prior to
three months after the date of such termination,
but only to the extent the option was exercisable
at the date of such termination.
(c)If an optionee is discharged for cause, his option
shall expire forthwith and all rights to purchase
shares under it shall terminate immediately. For
this purpose, "discharge for cause" means a
discharge on account of dishonesty, disloyalty or
insubordination.
(d)Notwithstanding the foregoing provisions of this
paragraph 7, the Committee may in the grant of any
option make other and different provisions with
respect to its exercise after the optionee's
termination of employment or directorship.
8........Non-Transferability of Options. No option
shall be transferable by the optionee otherwise than by will
or the laws of descent and distribution or pursuant to a
qualified domestic relations order, and each option shall be
exercisable during any optionee's lifetime only by the
optionee or optionee's legal representative.
9........Adjustment.
(a)In the event that the Company's outstanding common
stock is changed by any stock dividend, stock split
or combination of shares, the number of shares
subject to the Replacement Plan and to options
under the Replacement Plan shall be proportionately
adjusted.
(b)In case of any capital reorganization, or of any
reclassification of the common stock or in case of
the consolidation of the Company with or the merger
of the Company with or into any other corporation
(other than a consolidation or merger in which the
Company is the continuing corporation and which
does not result in any reclassification of
outstanding shares of common stock) or of the sale
of the properties and assets of the Company as, or
substantially as, an entirety to any other
corporation, the Company, or the corporation
resulting from such consolidation or surviving such
merger or to which such sale shall be made, as the
case may be, shall determine that upon exercise of
options granted under the Replacement Plan after
such capital reorganization, reclassification,
consolidation, merger or sale thereon shall be
issuable upon exercise of an option a kind and
amount of shares of stock or other securities or
property (which may, as an example, be a fixed
amount of cash equal to the consideration paid to
stockholders of the Company for shares transferred
or sold by them) which the holders of the common
stock (immediately prior to the time of such
capital reorganization, reclassification,
consolidation, merger or sale) are entitled to
receive in such transaction as in the judgment of
the Committee is required to compensate equitably
for the effect of such event upon the exercise
rights of the optionees. The above provisions of
this paragraph shall similarly apply to successive
reorganizations, reclassifications, consolidations,
mergers and sales.
(c)In the event of any such adjustment, the purchase
price per share shall be proportionately adjusted.
10.......Amendment of Replacement Plan. The Board
of Directors may amend or discontinue the Replacement Plan
at any time. However, no such amendment or discontinuance
shall (a) change or impair any option previously granted
without the consent of the optionee, (b) increase the
maximum number of shares which may be purchased by all
optionees or any one optionee, (c) change the minimum
purchase price, (d) change the limitations on the option
period or increase the time limitations on the grant of
options, or (e) permit the granting of options to members of
the Committee.
11. Effective Date. The Replacement Plan has been
adopted and authorized by the Board of Directors for
submission to the stockholders of the Company. If the
Replacement Plan is approved by the affirmative vote of the
holders of a majority of the outstanding voting stock of the
Company at a duly held stockholders' meeting, it shall be
deemed to have become effective on March 12, 1996, the date
of adoption by the Board of Directors. Options may be
granted under the Replacement Plan before its approval by
the stockholders, but subject to such approval, and in each
such case the date of grant shall be determined without
reference to the date of the approval of the Replacement
Plan by stockholders.
<PAGE>
EXHIBIT B
MEDICUS SYSTEMS CORPORATION
1996 C.E.O. SPECIAL STOCK OPTION CERTIFICATE
(Not Qualifying as an Incentive Stock Option)
This is to certify that the predecessor of Medicus
Systems Corporation (the "Company"), a Delaware corporation
and successor to the software business of Managed Care
Solutions, Inc., formerly known as Medicus Systems
Corporation, has on March 12, 1996, granted to Patrick C.
Sommers (the "Optionee") an option to purchase 18,000 shares
of its common stock, par value $.01 per share, upon the
terms and conditions set forth herein.
1. The purchase price payable upon exercise of this
option, shall be $ 2.00 per share, subject to adjustment as
provided in paragraph 6 below. 2. The exercise of this
option shall be subject to the following conditions:
(a) This option shall become exercisable
with respect to 100% of the shares subject to this option on
February 28, 1997. All or any part of the shares with
respect to which the right to purchase has accrued may be
purchased at the time of such accrual or at any time or
times thereafter during the option period.
(b) This option may be exercised by giving
written notice to the Company, attention of the Secretary,
specifying the number of shares to be purchased, accompanied
by (i) the full purchase price for the shares to be
purchased either in cash or by check; and (ii) payment in
full of all withholding taxes due as a result of the
exercise or another arrangement satisfactory to the Company
for the payment of such withholding taxes.
(c) At the time of any exercise of this
option, the Company may, if it shall determine it necessary
or desirable for any reason, require the Optionee (or his
heirs, legatees or legal representative, as the case may be)
as a condition upon the exercise, to deliver to the Company
a written representation of present intention to purchase
the shares for his own account for investment and an
agreement not to distribute or sell such shares in violation
of the registration provisions of applicable securities
laws. If such representation and agreement are required to
be delivered, an appropriate legend may be placed upon each
certificate delivered to the Optionee upon his exercise of
part or all of this option and a stop transfer order may be
placed with the transfer agent.
(d) If at any time a disinterested
committee of the Board of Directors determines, in its
discretion, that the listing, registration or qualification
of the shares subject to this option upon any securities
exchange or under any state or federal law, or the consent
or approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in connection
with, the issue or purchase of shares thereunder, this
option may not be exercised in whole or in part unless such
listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions
not acceptable by the disinterested committee of the Board
of Directors.
3. The term of this option is ten years, but
subject to earlier expiration as provided in paragraph 5.
This option is thus not exercisable to any extent after the
expiration of ten years from the date of this stock option
certificate, or after any earlier expiration date that may
be applicable under the terms of paragraph 5.
4. This option is not transferable by the Optionee
otherwise than by will or the laws of descent and
distribution, and during the life of the Optionee it is
exercisable only by him.
5. (a) If the employment of the Optionee with the
Company or any of its subsidiaries is terminated for any
reason other than death, permanent disability, retirement or
cause, this option, to the extent it is exercisable on the
date of termination, shall expire thirty days after the
later of (i) February 28, 1997, and (ii) the date of
termination of employment (or upon the scheduled termination
of this option, if earlier), and all rights to purchase
shares pursuant thereto shall terminate at such time.
Temporary absence from employment because of illness,
vacation or approved leaves of absence, or transfers of
employment among the Company and its parent or subsidiary
corporations, shall not be considered to terminate
employment or to interrupt continuous employment.
(b) In the event of termination of
employment because of death or permanent disability (within
the meaning of section 22(e)(3) of the Internal Revenue
Code, as amended), this option may be exercised in full,
without regard to the installments established by paragraph
2(a), by the Optionee or, if he is not living, by his heirs,
legatees, or legal representative, as the case may be,
during its specified term prior to one year after the date
of death or permanent disability. In the event of
termination of employment because of retirement, this option
may be exercised by the Optionee (or if he dies within three
months after such termination, by his heirs, legatees or
legal representative, as the case may be) at any time during
its specified term prior to three months after the date of
such termination, but only to the extent this option was
exercisable at the date of such termination.
(c) If the Optionee is discharged for
cause, this option shall expire forthwith and all rights to
purchase shares under it shall terminate on the later of (i)
30 days following February 28, 1997, and (ii) the date of
discharge. For this purpose, "discharge for cause" means a
discharge on account of dishonesty, disloyalty or
insubordination.
6. (a) In the event that the Company's outstanding
common stock is changed by any stock dividend, stock split
or combination of shares, the number of shares subject to
this option shall be proportionately adjusted.
(b) In case of any capital reorganization,
or of any reclassification of the common stock or in case of
the consolidation of the Company with or the merger of the
Company with or into any other corporation (other than a
consolidation or merger in which the Company is the
continuing corporation and which does not result in any
reclassification of outstanding shares of common stock) or
of the sale of the properties and assets of the Company as,
or substantially as, an entirety to any other corporation,
the Company, or the corporation resulting from such
consolidation or surviving such merger or to which such sale
shall be made, as the case may be, shall give notice to the
Optionee providing that upon exercise of this option after
such capital reorganization, reclassification,
consolidation, merger or sale there shall be issuable upon
exercise of this option a kind and amount of shares of stock
or other securities or property (which may, as an example,
be a fixed amount of cash equal to the consideration paid to
stockholders of the Company for shares transferred or sold
by them) which the holders of the common stock (immediately
prior to the time of such capital reorganization,
reclassification, consolidation, merger or sale) are
entitled to receive in such transaction upon exercise as in
the judgment of a disinterested committee Board of Directors
is required to compensate equitably for the effect of such
event upon the exercise rights of the Optionee. The above
provisions of this Section shall similarly apply to
successive reorganizations, reclassifications,
consolidations, mergers and sales.
(c) In the event of any such adjustment,
the purchase price per share shall be proportionately
adjusted.
7. The granting of this option shall not confer
upon the Optionee any right to be continued in the
employment of the Company or any subsidiary of the Company,
or interfere in any way with the right of the Company or its
subsidiaries to terminate his employment at any time.
8. Neither the Optionee nor his heirs, legatees, or
legal representative shall have any rights of stockholders
with respect to the shares subject to this option until such
shares are actually issued upon exercise of this option.
9. (a) This option is granted pursuant to a
resolution of the Board of Directors of the Company, and is
explicitly not granted pursuant to or under an Incentive
Stock Option Plan as defined in the Internal Revenue Code.
Thus this option is intended not to qualify as an "incentive
stock option" under the Internal Revenue Code.
(b) This option shall be administered by a
committee of disinterested outside members of the Board of
Directors of the Company, whose interpretation of the terms
and provisions of this option shall be final and conclusive.
This certificate is executed as of the date on
which this option evidenced by it is granted as stated
above.
MEDICUS SYSTEMS CORPORATION
By /s/ William W. Cowan
- -----------------------
William W. Cowan
Vice President
<PAGE>
EXHIBIT C
Form of
MEDICUS SYSTEMS CORPORATION, INC.
(1989/1991/1993/1993 PERFORMANCE, AND 1994)
STOCK OPTION AND RESTRICTED STOCK PLAN, AS AMENDED
____________, 199_
The purpose of this Stock Option Plan (the "Plan")
is to benefit Medicus Systems Corporation, Inc. (the
"Company") and its subsidiaries through the maintenance and
development of management by offering certain present and
future executive and key personnel a favorable opportunity
to become holders of stock in the Company over a period of
years, thereby giving them a permanent stake in the growth
and prosperity of the Company and encouraging the
continuance of their services with the Company or its
subsidiaries. Options granted under this Plan are intended
not to qualify as "Incentive Stock Options" as defined in
Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), and the Plan shall be construed so as to carry
out that intention.
1. Administration. The Plan shall be administered
by a committee (the "Committee") of the Board of Directors
composed of no fewer than two "disinterested" "outside"
directors designated by the Board of Directors. For purposes
of this Plan, (a) "disinterested" has the meaning under the
tests for "disinterested administration" of the Plan under
the rules and regulations adopted by the Securities and
Exchange Commission under Section 16 of the Securities
Exchange Act of 1934 and (b) "outside" has the meaning under
the tests for "outside director" under the Regulations
adopted by the Internal Revenue Service relating to Section
162(m) of the Code, or any successor provision,, including
all of the transition rules thereunder. A majority of the
Committee shall constitute a quorum, and the acts of a
majority of the members present at any meeting at which a
quorum is present, or acts approved in writing by all of the
members, shall be the acts of the Committee. This Plan is
intended to qualify for exemption from Section 16(b) of the
Securities Exchange Act of 1934 and stock options issued
under the Plan are intended to qualify as performance-based
compensation under Section 162(m) of the Code and the Plan
shall be interpreted in such a way as to result in such
qualification.
Subject to the provisions of the Plan, the
Committee shall have full and final authority, in its
absolute discretion, (a) to determine the persons to be
granted options under the Plan, (b) to determine the number
of shares subject to each option, (c) to determine the time
or times at which options will be granted, (d) to determine
the option price of the shares subject to each option, which
price shall not be less than the minimum specified in
Section 4 of the Plan, (e) to determine the time or times
when each option becomes exercisable and the duration of the
exercise period, (f) to prescribe the form or forms of the
agreements evidencing any options granted under the Plan
(which forms shall be consistent with the Plan), (g) to
adopt, amend and rescind such rules and regulations as, in
the Committee's opinion, may be advisable in the
administration of the Plan, and (h) to construe and
interpret the Plan, the rules and regulations and the
agreements evidencing options granted under the Plan and to
make all other determinations deemed necessary or advisable
for the administration of the Plan. Any decision made or
action taken in good faith by the Committee in connection
with the administration, interpretation, and implementation
of the Plan and of its rules and regulations shall, to the
extent permitted by law, be conclusive and binding upon all
optionees under the Plan and upon any person claiming under
or through such an optionee, and no director of the Company
shall be liable for any such decision made or action taken
by the Committee.
In addition, the Committee shall have the
authority, in its sole discretion, (a) to determine the
individuals to whom shares of Restricted Stock are granted
under the Plan; (b) to determine the number of Restricted
Shares subject to each such grant; (c) to determine the time
or times when Restricted Shares are granted; (d) to
determine the time or times when, or conditions upon which,
the restrictions on such Restricted Shares lapse (the
duration of such restrictions hereinafter referred to as the
"Restricted Period"); (e) to accelerate the Restricted
Period for Restricted Shares granted pursuant to the Plan
including with respect to Restricted Shares held by
employees whose employment has been terminated by reason of
death, permanent disability or retirements; (f) to determine
the term of each grant of Restricted Shares; (g) to
prescribe the form or forms of agreements which evidence
Restricted Shares granted under the Plan; and (h) to
interpret the Plan and to adopt rules or regulations
(consistent with the terms of the Plan) which, in the
Committee's opinion, may be necessary or advisable for the
administration of the Plan.
2. Eligibility. Options shall be granted only to
key employees and directors (other than members of the
Committee) of the Company and its subsidiaries.
3. Granting of Options and Restricted Shares.
(a) The Committee may grant options and
Restricted Shares under which a total of not more
than ________ (1989 Plan: 220,000 shares; 1991
Plan: 200,000 shares; 1993 Plan: 300,000; 1993
Performance Plan: 200,000 shares; and 1994 Plan:
400,000 shares) of the Common Stock of the Company
may be purchased from or provided by the Company,
subject to adjustment as provided in Paragraph 9 of
this Plan. The maximum number of shares subject to
all options, together with all Restricted Shares,
granted to an individual in any calendar year shall
in no event exceed 100,000, subject to adjustment
as provided in Section 9.
(b) No options or Restricted Shares shall
be granted under the Plan after (1989 Plan: January
2, 1999; 1991 Plan: August 31, 2001; 1993 Plan:
January 31, 2003; 1993 Performance Plan: March 31,
2001; and 1994 Plan: April 14, 2004). If an option
expires or is terminated or canceled unexercised as
to any shares, such released shares may again be
optioned (including a grant in substitution for a
canceled option). Shares subject to options or
granted as Restricted Shares may be made available
from unissued or reacquired shares of Common Stock.
(c) Nothing contained in the Plan or in
any option granted pursuant thereto shall confer
upon any optionee any right to be continued in the
employment of the Company or any subsidiary of the
Company, or interfere in any way with the right of
the Company or its subsidiaries to terminate his
employment at any time.
4. Option Price. The option price shall be
determined by the Committee and, subject to the provisions
of paragraph 9, shall be not less than the fair market
value, at the time the option is granted, of the stock
subject to the option.
5. Duration of Options, Increments and Extensions
and Rights and Restrictions Governing Restricted Shares.
(a) Subject to the provisions of paragraph
7, each option shall be for such term of not more
than ten years as shall be determined by the
Committee at the date of the grant. Each option
shall become exercisable in such installments, at
such time or times, and may be subject to such
conditions, including conditions based upon the
performance of the Company, as the Committee may in
its discretion determine at the date of grant.
(b) The Committee may in its discretion
(i) accelerate the exercisability of any option or
(ii) at any time before the expiration or
termination of an option previously granted, extend
the terms of such option (including options held by
officers) for such additional period as the
Committee, in its discretion, shall determine,
except that the aggregate option period with
respect to any option, including the original term
of the option and any extensions thereof, shall
never exceed ten years.
(c) At the time of grant of Restricted
Shares, subject to the receipt by the Company of
any applicable consideration for such Restricted
Shares, one or more certificates representing the
appropriate number of shares of Common Stock
granted to an individual shall be registered either
in his name or for his benefit either individually
or collectively with others, but shall be held by
the Company for the account of the individual. The
individual shall have all rights of a holder as to
such shares of Common Stock, including the right to
receive dividends, to exercise rights, and to vote
such Common Stock and any securities issued upon
exercise of rights, subject to the following
restrictions: (a) the individual shall not be
entitled to delivery of certificates representing
such shares of Common Stock and any other such
securities until the expiration of the Restricted
Period, (b) none of the Restricted Shares may be
sold, transferred, assigned, pledged, or otherwise
encumbered or disposed of during the Restricted
Period, and (c) all of the Restricted Shares shall
be forfeited and all rights of the individual to
such Restricted Shares shall terminate without
further obligation on the part of the Company
unless the individual remains in the continuous
employment of the Company for the entire Restricted
Period in relation to which such Restricted Shares
were granted, except as otherwise allowed by
Section 7 hereof. Any shares of Common Stock or
other securities or property received with respect
to such shares shall be subject to the same
restrictions as such Restricted Shares.
6. Exercise of Options and Payments of Restricted
Shares.
(a) An option may be exercised by giving
written notice to the Company, attention of the
Secretary, specifying the number of shares to be
purchased, accompanied by the full purchase price
for the shares to be purchased in cash or by check,
except that the Committee may permit the purchase
price for the shares to be paid, all or in part, by
the delivery to the Company of other shares of
common stock of the Company in such circumstances
and manner as it may specify. For this purpose, the
per share value of the Company's common stock shall
be the fair market value at the close of business
on the date preceding the date of exercise.
(b) At the time of exercise of any option,
the Committee may, if it shall determine it
necessary or desirable for any reason, require the
optionee (or his heirs, legatees, legal
representative, or alternate payee under a domestic
relations order, as the case may be) as a condition
upon the exercise, to deliver to the Company a
written representation of present intention to
purchase the shares for his own account for
investment and an agreement not to distribute or
sell such shares in violation of the registration
provisions of applicable securities laws. If such
representation and agreement are required to be
delivered, an appropriate legend may be placed upon
each certificate delivered to the optionee upon his
exercise of part or all of the option and a stop
transfer order may be placed with the transfer
agent.
(c) Each option shall also be subject to
the requirement that, if at any time the Committee
determines, in its discretion, that the listing,
registration or qualification of the shares subject
to the option upon any securities exchange or under
any state or federal law, or the consent or
approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in
connection with, the issue or purchase of shares
thereunder, the option may not be exercised in
whole or in part unless such listing, registration,
qualification, consent or approval shall have been
effected or obtained free of any conditions not
acceptable to the Committee.
(d) If the Committee shall determine it
necessary or desirable for any reason, an option
shall provide that it is contemplated that the
shares acquired through the exercise of the option
will not be registered under applicable federal and
state securities laws and that such shares cannot
be resold unless they are registered under such
laws or unless an exemption from registration is
available, and the certificate for any such shares
issued upon the exercise of the option shall bear a
legend making appropriate reference to such
provisions.
(e) At the end of the Restricted Period,
all restrictions contained in the Restricted Share
Agreement and in the Plan shall lapse as to the
Restricted Shares granted in relation to such
Restricted Period, and one or more stock
certificates for the appropriate number of shares
of Common Stock, free of restrictions, shall be
delivered to the individual or such shares of
Common Stock shall be credited to a brokerage
account if the individual so directs.
(f) The Company may, in its sole
discretion, offer an individual the right, by
execution of a written agreement, to defer the
receipt of all or any portion of the payment, if
any, for Restricted Shares. If such an election to
defer is made, the shares of Common Stock
receivable in payment for Restricted Shares shall
be deferred as stock units equal in number to and
exchangeable, at the end of the deferral period,
for the number of shares of Common Stock that would
have been paid to the individual. Such stock units
shall represent only a contractual right and shall
not give the individual any interest, right or
title to any shares of Common Stock the deferral
period. The cash receivable in payment for
fractional shares receivable shall be deferred as
cash units. Deferred stock units may be credited
annually with the appreciation factor contained in
the deferred compensation agreement or plan, which
may include dividend equivalents. All other terms
and conditions of deferred payments shall be as
contained in the written agreements.
7. Termination of Employment; Exercise Thereafter.
(a) If the employment or tenure as a
director of any optionee with the Company or any of
its subsidiaries is terminated for any reason other
than death, permanent disability, retirement or
cause, such optionee's option, to the extent the
option is exercisable at the date of termination,
shall expire thirty days after the termination of
employment or directorship (or upon the scheduled
termination of the option, if earlier), and all
rights to purchase shares pursuant thereto shall
terminate at such time. Temporary absence from
employment because of illness, vacation, approved
leave of absence, or transfer of employment among
the Company and its parent or subsidiary
corporations, shall not be considered to terminate
employment or to interrupt continuous employment.
(b) In the event of termination of
employment or directorship because of death or
permanent disability (within the meaning of Section
22(e)(3) of the Code), the option may be exercised
in full, unless otherwise provided at the time of
grant, without regard to any installments
established under paragraph 5 hereof, by the
optionee or, if he is not living, by his heirs,
legatees, legal representative, or alternate payee
pursuant to a domestic relations order, as the case
may be, during its specified term prior to one year
after the date of death or permanent disability. In
the event of termination of employment or
directorship because of retirement, the option may
be exercised by the optionee (or, if he dies within
three months after such termination, by his heirs,
legatees, legal representative, or alternate payee
under a domestic relations order, as the case may
be), at any time during its specified term prior to
three months after the date of such termination,
but only to the extent the option was exercisable
at the date of such termination.
(c) If an optionee is discharged for
cause, his option shall expire forthwith and all
rights to purchase shares under it shall terminate
immediately. For this purpose, "discharge for
cause" means a discharge on account of dishonesty,
disloyalty or insubordination.
(d) Notwithstanding the foregoing
provisions of this paragraph 7, the Committee may
in the grant of any option make other and different
provisions with respect to its exercise after the
optionee's termination of employment or
directorship.
(e) If an individual ceases to be an
employee of the Company by reason of death,
disability or retirement (as such terms are
described in subsection (b) above) prior to the end
of a Restricted Period, all Restricted Shares
granted to such individual are immediately payable
in the manner set forth in Section 6(e). Upon a
termination of employment for a reason other than
death, disability or retirement (as such terms are
described in subsection (b) above) prior to the end
of a Restricted Period, an individual shall
immediately forfeit all Restricted Shares
previously granted, unless the Committee, in its
sole discretion, finds that the circumstances in
the particular case so warrant and allows a
Participant whose employment has so terminated to
retain any or all of the Restricted Shares granted
to such individual.
8. Non-Transferability of Options. No option shall
be transferable by the Optionee otherwise than by will or
the laws of descent and distribution or pursuant to a
domestic relations order and each option shall be
exercisable during an Optionee's lifetime only by the
Optionee or by the Optionee's legal representative.
9. Adjustment.
(a) In the event that the Company's
outstanding Common Stock is changed by any stock
dividend, stock split or combination of shares, the
number of shares subject to this Plan and to
options under this Plan shall be proportionately
adjusted.
(b) In case of any capital reorganization,
or of any reclassification of the Common Stock or
in case of the consolidation of the Company with or
the merger of the Company with or into any other
corporation (other than a consolidation or merger
in which the Company is the continuing corporation
and which does not result in any reclassification
of outstanding shares of Common Stock) or of the
sale of the properties and assets of the Company
as, or substantially as, an entirety to any other
corporation, the Company, or the corporation
resulting from such consolidation or surviving such
merger or to which such sale shall be made, as the
case may be, shall determine that upon exercise of
options granted under the Plan after such capital
reorganization, reclassification, consolidation,
merger or sale there shall be issuable upon
exercise of an option a kind and amount of shares
of stock or other securities or property (which
may, as an example, be a fixed amount of cash equal
to the consideration paid to stockholders of the
Company for shares transferred or sold by them)
which the holders of the Common Stock (immediately
prior to the time of such capital reorganization,
reclassification, consolidation, merger or sale)
are entitled to receive in such transaction as in
the judgment of the Committee is required to
compensate equitably for the effect of such event
upon the exercise rights of the optionees. The
above provisions of this paragraph shall similarly
apply to successive reorganizations,
reclassifications, consolidations, mergers and
sales.
(c) In the event of any such adjustment
the purchase price per share shall be
proportionately adjusted.
10. Amendment of Plan. The Board of Directors may
amend or discontinue the Plan at any time. However, no such
amendment or discontinuance shall (a) change or impair any
option previously granted without the consent of the
optionee, (b) increase the maximum number of shares which
may be purchased by all optionees, (c) change the minimum
purchase price, (d) change the limitations on the option
period or increase the time limitations on the grant of
options, or (e) permit the granting of options to members of
the Committee.
11. Effective Date. The Plan has been adopted and
authorized by the Board of Directors for submission to the
stockholders of the Company. If the Plan is approved by the
affirmative vote of the holders of a majority of the
outstanding voting stock of the Company represented in
person or by proxy at a duly held stockholders' meeting, it
shall be deemed to have become effective on the date of such
approval (1989 Plan: March 22, 1989; 1991 Plan: September 9,
1991; 1993 Plan: February 27, 1993; 1993 Performance Plan:
April 22, 1993; 1994 Plan: April 15, 1994). Options may be
granted under the Plan before its approval by the
stockholders, but subject to such approval, and in each such
case the date of grant shall be determined to be the date of
the approval of the Plan by stockholders.
<PAGE>
EXHIBIT D
MEDICUS SYSTEMS CORPORATION, INC.
1997 EMPLOYEE STOCK OPTION AND RESTRICTED STOCK PLAN
The purpose of this Stock Option and Restricted
Stock Plan (the "Plan") is to benefit Medicus Systems
Corporation, Inc. (the "Company") and its subsidiaries
through the maintenance and development of management by
offering certain present and future executive and key
personnel a favorable opportunity to become holders of stock
in the Company over a period of years, thereby giving them a
permanent stake in the growth and prosperity of the Company
and encouraging the continuance of their services with the
Company or its subsidiaries. Options granted under this Plan
are intended not to qualify as "Incentive Stock Options" as
defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), and the Plan shall be construed so
as to carry out that intention.
1. Administration. The Plan shall be administered
by a committee (the "Committee") of the Board of Directors
composed of no fewer than two "disinterested" "outside"
directors designated by the Board of Directors. For purposes
of this Plan, (a) "disinterested" has the meaning under the
tests for "disinterested administration" of the Plan under
the rules and regulations adopted by the Securities and
Exchange Commission under Section 16 of the Securities
Exchange Act of 1934 and (b) "outside" has the meaning under
the tests for "outside director" under the Regulations
adopted by the Internal Revenue Service relating to Section
162(m) of the Code, or any successor provision, including
all of the transition rules thereunder. A majority of the
Committee shall constitute a quorum, and the acts of a
majority of the members present at any meeting at which a
quorum is present, or acts approved in writing by all of the
members, shall be the acts of the Committee. This Plan is
intended to qualify for exemption from Section 16(b) of the
Securities Exchange Act of 1934 and stock options issued
under the Plan are intended to qualify as performance-based
compensation under Section 162(m) of the Code and the Plan
shall be interpreted in such a way as to result in such
qualification.
Subject to the provisions of the Plan, the
Committee shall have full and final authority, in its
absolute discretion, (a) to determine the persons to be
granted options under the Plan, (b) to determine the number
of shares subject to each option, (c) to determine the time
or times at which options will be granted, (d) to determine
the option price of the shares subject to each option, which
price shall not be less than the minimum specified in
Section 4 of the Plan, (e) to determine the time or times
when each option becomes exercisable and the duration of the
exercise period, (f) to prescribe the form or forms of the
agreements evidencing any options granted under the Plan
(which forms shall be consistent with the Plan), (g) to
adopt, amend and rescind such rules and regulations as, in
the Committee's opinion, may be advisable in the
administration of the Plan, and (h) to construe and
interpret the Plan, the rules and regulations and the
agreements evidencing options granted under the Plan and to
make all other determinations deemed necessary or advisable
for the administration of the Plan. Any decision made or
action taken in good faith by the Committee in connection
with the administration, interpretation, and implementation
of the Plan and of its rules and regulations shall, to the
extent permitted by law, be conclusive and binding upon all
optionees under the Plan and upon any person claiming under
or through such an optionee, and no director of the Company
shall be liable for any such decision made or action taken
by the Committee.
In addition, the Committee shall have the
authority, in its sole discretion, (a) to determine the
individuals to whom shares of Restricted Stock are granted
under the Plan; (b) to determine the number of Restricted
Shares subject to each such grant; (c) to determine the time
or times when Restricted Shares are granted; (d) to
determine the time or times when, or conditions upon which,
the restrictions on such Restricted Shares lapse (the
duration of such restrictions hereinafter referred to as the
"Restricted Period"); (e) to accelerate the Restricted
Period for Restricted Shares granted pursuant to the Plan
including with respect to Restricted Shares held by
employees whose employment has been terminated by reason of
death, permanent disability or retirements; (f) to determine
the term of each grant of Restricted Shares; (g) to
prescribe the form or forms of agreements which evidence
Restricted Shares granted under the Plan; and (h) to
interpret the Plan and to adopt rules or regulations
(consistent with the terms of the Plan) which, in the
Committee's opinion, may be necessary or advisable for the
administration of the Plan.
2. Eligibility. Options shall be granted only to
key employees and directors (other than members of the
Committee) of the Company and its subsidiaries.
3. Granting of Options and Restricted Shares.
(a) The Committee may grant options and
Restricted Shares under which a total of not more
than 300,000 shares of the Common Stock of the
Company may be purchased from or provided by the
Company, subject to adjustment as provided in
Paragraph 9 of this Plan. The maximum number of
shares subject to all options, together with all
Restricted Shares, granted to an individual in any
calendar year shall in no event exceed 100,000,
subject to adjustment as provided in Section 9.
(b) No options or Restricted Shares shall
be granted under the Plan after January 2, 2007. If
an option expires or is terminated or canceled
unexercised as to any shares, such released shares
may again be optioned (including a grant in
substitution for a canceled option). Shares subject
to options or granted as Restricted Shares may be
made available from unissued or reacquired shares
of Common Stock.
(c) Nothing contained in the Plan or in
any option granted pursuant thereto shall confer
upon any optionee any right to be continued in the
employment of the Company or any subsidiary of the
Company, or interfere in any way with the right of
the Company or its subsidiaries to terminate his
employment at any time.
4. Option Price. The option price shall be
determined by the Committee and, subject to the provisions
of paragraph 9, shall be not less than the fair market
value, at the time the option is granted, of the stock
subject to the option.
5. Duration of Options, Increments and Extensions
and Rights and Restrictions Governing Restricted Shares.
(a) Subject to the provisions of Section
7, each option shall be for such term of not more
than ten years as shall be determined by the
Committee at the date of the grant. Each option
shall become exercisable in such installments, at
such time or times, and may be subject to such
conditions, including conditions based upon the
performance of the Company, as the Committee may in
its discretion determine at the date of grant.
(b) The Committee may in its discretion
(i) accelerate the exercisability of any option or
(ii) at any time before the expiration or
termination of an option previously granted, extend
the terms of such option (including options held by
officers) for such additional period as the
Committee, in its discretion, shall determine,
except that the aggregate option period with
respect to any option, including the original term
of the option and any extensions thereof, shall
never exceed ten years.
(c) At the time of grant of Restricted
Shares, subject to the receipt by the Company of
any applicable consideration for such Restricted
Shares, one or more certificates representing the
appropriate number of shares of Common Stock
granted to an individual shall be registered either
in his name or for his benefit either individually
or collectively with others, but shall be held by
the Company for the account of the individual. The
individual shall have all rights of a holder as to
such shares of Common Stock, including the right to
receive dividends, to exercise rights, and to vote
such Common Stock and any securities issued upon
exercise of rights, subject to the following
restrictions: (a) the individual shall not be
entitled to delivery of certificates representing
such shares of Common Stock and any other such
securities until the expiration of the Restricted
Period, (b) none of the Restricted Shares may be
sold, transferred, assigned, pledged, or otherwise
encumbered or disposed of during the Restricted
Period, and (c) all of the Restricted Shares shall
be forfeited and all rights of the individual to
such Restricted Shares shall terminate without
further obligation on the part of the Company
unless the individual remains in the continuous
employment of the Company for the entire Restricted
Period in relation to which such Restricted Shares
were granted, except as otherwise allowed by
Section 7 hereof. Any shares of Common Stock or
other securities or property received with respect
to such shares shall be subject to the same
restrictions as such Restricted Shares.
6. Exercise of Options and Payments of Restricted
Shares.
(a) An option may be exercised by giving
written notice to the Company, attention of the
Secretary, specifying the number of shares to be
purchased, accompanied by the full purchase price
for the shares to be purchased in cash or by check,
except that the Committee may permit the purchase
price for the shares to be paid, all or in part, by
the delivery to the Company of other shares of
Common Stock of the Company in such circumstances
and manner as it may specify. For this purpose, the
per share value of the Company's Common Stock shall
be the fair market value at the close of business
on the date preceding the date of exercise.
(b) At the time of exercise of any option,
the Committee may, if it shall determine it
necessary or desirable for any reason, require the
optionee (or his heirs, legatees, legal
representative, or alternate payee under a domestic
relations order, as the case may be) as a condition
upon the exercise, to deliver to the Company a
written representation of present intention to
purchase the shares for his own account for
investment and an agreement not to distribute or
sell such shares in violation of the registration
provisions of applicable securities laws. If such
representation and agreement are required to be
delivered, an appropriate legend may be placed upon
each certificate delivered to the optionee upon his
exercise of part or all of the option and a stop
transfer order may be placed with the transfer
agent.
(c) Each option shall also be subject to
the requirement that, if at any time the Committee
determines, in its discretion, that the listing,
registration or qualification of the shares subject
to the option upon any securities exchange or under
any state or federal law, or the consent or
approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in
connection with, the issue or purchase of shares
thereunder, the option may not be exercised in
whole or in part unless such listing, registration,
qualification, consent or approval shall have been
effected or obtained free of any conditions not
acceptable to the Committee.
(d) If the Committee shall determine it
necessary or desirable for any reason, an option
shall provide that it is contemplated that the
shares acquired through the exercise of the option
will not be registered under applicable federal and
state securities laws and that such shares cannot
be resold unless they are registered under such
laws or unless an exemption from registration is
available, and the certificate for any such shares
issued upon the exercise of the option shall bear a
legend making appropriate reference to such
provisions.
(e) At the end of the Restricted Period,
all restrictions contained in the Restricted Share
Agreement and in the Plan shall lapse as to the
Restricted Shares granted in relation to such
Restricted Period, and one or more stock
certificates for the appropriate number of shares
of Common Stock, free of restrictions, shall be
delivered to the individual or such shares of
Common Stock shall be credited to a brokerage
account if the individual so directs.
(f) The Company may, in its sole
discretion, offer an individual the right, by
execution of a written agreement, to defer the
receipt of all or any portion of the payment, if
any, for Restricted Shares. If such an election to
defer is made, the shares of Common Stock
receivable in payment for Restricted Shares shall
be deferred as stock units equal in number to and
exchangeable, at the end of the deferral period,
for the number of shares of Common Stock that would
have been paid to the individual. Such stock units
shall represent only a contractual right and shall
not give the individual any interest, right or
title to any shares of Common Stock during the
deferral period. The cash receivable in payment for
fractional shares receivable shall be deferred as
cash units. Deferred stock units may be credited
annually with the appreciation factor contained in
the deferred compensation agreement or plan, which
may include dividend equivalents. All other terms
and conditions of deferred payments shall be as
contained in the written agreements.
7. Termination of Employment; Exercise Thereafter.
(a) If the employment or tenure as a
director of any optionee with the Company or any of
its subsidiaries is terminated for any reason other
than death, permanent disability, retirement or
cause, such optionee's option, to the extent the
option is exercisable at the date of termination,
shall expire thirty days after the termination of
employment or directorship (or upon the scheduled
termination of the option, if earlier), and all
rights to purchase shares pursuant thereto shall
terminate at such time. Temporary absence from
employment because of illness, vacation, approved
leave of absence, or transfer of employment among
the Company and its parent or subsidiary
corporations, shall not be considered to terminate
employment or to interrupt continuous employment.
(b) In the event of termination of
employment or directorship because of death or
permanent disability (within the meaning of Section
22(e)(3) of the Code), the option may be exercised
in full, unless otherwise provided at the time of
grant, without regard to any installments
established under paragraph 5 hereof, by the
optionee or, if he is not living, by his heirs,
legatees, legal representative, or alternate payee
pursuant to a domestic relations order, as the case
may be, during its specified term prior to one year
after the date of death or permanent disability. In
the event of termination of employment or
directorship because of retirement, the option may
be exercised by the optionee (or, if he dies within
three months after such termination, by his heirs,
legatees, legal representative, or alternate payee
under a domestic relations order, as the case may
be), at any time during its specified term prior to
three months after the date of such termination,
but only to the extent the option was exercisable
at the date of such termination.
(c) If an optionee is discharged for
cause, his option shall expire forthwith and all
rights to purchase shares under it shall terminate
immediately. For this purpose, "discharge for
cause" means a discharge on account of dishonesty,
disloyalty or insubordination.
(d) Notwithstanding the foregoing
provisions of this paragraph 7, the Committee may
in the grant of any option make other and different
provisions with respect to its exercise after the
optionee's termination of employment or
directorship.
(e) If an individual ceases to be an
employee of the Company by reason of death,
disability or retirement (as such terms are
described in subsection (b) above) prior to the end
of a Restricted Period, all Restricted Shares
granted to such individual are immediately payable
in the manner set forth in Section 6(e). Upon a
termination of employment for a reason other than
death, disability or retirement (as such terms are
described in subsection (b) above) prior to the end
of a Restricted Period, an individual shall
immediately forfeit all Restricted Shares
previously granted, unless the Committee, in its
sole discretion, finds that the circumstances in
the particular case so warrant and allows a
Participant whose employment has so terminated to
retain any or all of the Restricted Shares granted
to such individual.
8. Non-Transferability of Options. No option shall
be transferable by the Optionee otherwise than by will or
the laws of descent and distribution or pursuant to a
domestic relations order and each option shall be
exercisable during an Optionee's lifetime only by the
Optionee or by the Optionee's legal representative.
9. Adjustment.
(a) In the event that the Company's
outstanding Common Stock is changed by any stock
dividend, stock split or combination of shares, the
number of shares subject to this Plan and to
options under this Plan shall be proportionately
adjusted.
(b) In case of any capital reorganization,
or of any reclassification of the Common Stock or
in case of the consolidation of the Company with or
the merger of the Company with or into any other
corporation (other than a consolidation or merger
in which the Company is the continuing corporation
and which does not result in any reclassification
of outstanding shares of Common Stock) or of the
sale of the properties and assets of the Company
as, or substantially as, an entirety to any other
corporation, the Company, or the corporation
resulting from such consolidation or surviving such
merger or to which such sale shall be made, as the
case may be, shall determine that upon exercise of
options granted under the Plan after such capital
reorganization, reclassification, consolidation,
merger or sale there shall be issuable upon
exercise of an option a kind and amount of shares
of stock or other securities or property (which
may, as an example, be a fixed amount of cash equal
to the consideration paid to stockholders of the
Company for shares transferred or sold by them)
which the holders of the Common Stock (immediately
prior to the time of such capital reorganization,
reclassification, consolidation, merger or sale)
are entitled to receive in such transaction as in
the judgment of the Committee is required to
compensate equitably for the effect of such event
upon the exercise rights of the optionees. The
above provisions of this paragraph shall similarly
apply to successive reorganizations,
reclassifications, consolidations, mergers and
sales.
(c) In the event of any such adjustment
the purchase price per share shall be
proportionately adjusted.
10. Amendment of Plan. The Board of Directors may
amend or discontinue the Plan at any time. However, no such
amendment or discontinuance shall (a) change or impair any
option previously granted without the consent of the
optionee, (b) increase the maximum number of shares which
may be purchased by all optionees, (c) change the minimum
purchase price, (d) change the limitations on the option
period or increase the time limitations on the grant of
options, or (e) permit the granting of options to members of
the Committee.
11. Effective Date. The Plan has been adopted and
authorized by the Board of Directors for submission to the
stockholders of the Company. If the Plan is approved by the
affirmative vote of the holders of a majority of the
outstanding voting stock of the Company represented in
person or by proxy at a duly held stockholders' meeting, it
shall be deemed to have become effective on the date of such
approval. Options may be granted under the Plan before its
approval by the stockholders, but subject to such approval,
and in each such case the date of grant shall be determined
to be the date of the approval of the Plan by stockholders.
<PAGE>
EXHIBIT E
STOCK PURCHASE AND WARRANT AGREEMENT
This Stock Purchase and Warrant Agreement (the
"Agreement") is entered into as of January 2, 1997 between
Medicus Systems Corporation, a Delaware corporation (the
"Company"), and Richard C.Jelinek(*)[the Boston Safe Deposit
=================
and Trust Company of California, or its successors, as
trustee of the Richard C. Jelinek Charitable Remainder
Unitrust dated August 3, 1993](**) (the "Shareholder").
* Language for Agreement with Richard C. Jelinek appears
double-underlined.
** Language for Agreement with Richard C. Jelinek Trust
appears in brackets [ ].
W I T N E S S E T H
WHEREAS, the Shareholder is the beneficial owner of
1,837,900 [450,000] shares of Common Stock, $.01 par value
=========
("Common Stock"), of the Company, and the Shareholder wishes
to sell 550,000 [450,000] of such shares to the Company
=======
(such shares of Common Stock to be sold being referred to as
the "Shares");
WHEREAS, the Shareholder holds an option (the
=======================
"Option") to purchase all 500 of the authorized [will own
=================================================
225] shares of the Company's Voting Preferred Stock
[("Voting Preferred Shares") immediately prior to the
closing of the transactions contemplated in this
Agreement;](275 shares of such shares of Voting Preferred
================================================
Stock being referred to as the "Voting Preferred Shares");
==========================================================
WHEREAS, the Shareholder intends to exercise the
======================================================
Option;
======
WHEREAS, the Board of Directors (the "Board") of the
Company has determined that it is in the best interest of
its stockholders for the Company to acquire the Shares and
the Voting Preferred Stock owned by the Shareholder, all
upon the terms and subject to the conditions set forth
herein;
NOW THEREFORE, in consideration of the foregoing and
the mutual covenants and agreements herein contained, the
Company and the Shareholder hereby agree as follows:
1. The Purchase. Subject to the terms and
conditions set forth in this Agreement, the Company agrees
to purchase from the Shareholder, and the Shareholder agrees
to sell, assign and transfer to the Company on the Closing
Date (as defined below), all of the Shareholder's right,
title and interest in the Shares and all of the
Shareholder's right, title and interest in the Voting
Preferred Shares.
2. The Closing. The Closing of the
transactions contemplated by this Agreement (the "Closing")
shall take place at the offices of Bell, Boyd & Lloyd, Three
First National Plaza, Chicago, Illinois not later than April
15, 1997, unless the parties otherwise agree. The date upon
which the Closing occurs is herein referred to as the
Closing Date.
3. Payment. At the Closing, (a) the
Company shall deliver to the Shareholder (i) cash
consideration of $2,475,000 [$2,025,000] (the "Cash
==========
Consideration"), (ii) a promissory note, in substantially
the form of Exhibit A hereto, with 50% of the principal
amount maturing in one year and the balance one year
thereafter and bearing 8% interest, in the aggregate
principal amount of $1,100,000 [$900,000] (the "Promissory
==========
Note"), and (iii) a Warrant to purchase 220,000 [180,000]
=======
shares of Common Stock at an exercise price of $8.00 per
share, which shall be substantially in the form of Exhibit B
hereto (the "Warrant"), and (b) the Shareholder shall
deliver to the Company certificates representing all of the
Shares and all of the Voting Preferred Shares, together with
duly executed stock powers with respect to the Shares and
Voting Preferred Shares in blank in form satisfactory to the
Company. The Company shall make payment of the Cash
Consideration pursuant to this Section 3 on the Closing Date
by wire transfer to an account designated by the Shareholder
in an amount equal to the Cash Consideration.
4. Representations and Warranties of the
Shareholder. The Shareholder hereby represents and warrants
to the Company that:
(a) This Agreement has been duly executed
by the Shareholder and is the legal, valid and binding
obligation of the Shareholder, enforceable against the
Shareholder in accordance with its terms. Such execution and
delivery do not, and performance of this Agreement will not,
(i) conflict with, violate or breach any order, judgment,
injunction or decree of any court, arbitrator, government or
governmental agency or instrumentality against or binding on
the Shareholder or by which any of his assets or properties
are bound or affected, (ii) constitute a violation by the
Shareholder of any law, rule, regulation, order, judgment or
decree applicable to the Shareholder or by which any
property or asset of the Shareholder is bound or affected or
(iii) conflict with, violate, breach or cause a default (or
an event which with notice or lapse of time or both would
become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any
agreement or instrument to which the Shareholder is party or
by which any of his assets or properties are bound or
affected or result in the creation of a lien or other
encumbrance on any of his Shares.
(b) The Shareholder has had access to such
information concerning the Company, its business and its
financial condition as he [the Shareholder] deemed necessary
==
in connection with the transactions contemplated by this
Agreement.
(c) On the Closing Date, the Shareholder
will have valid title to all of the Shares and the Voting
Preferred Shares, in each case free and clear of any liens,
charges or encumbrances, and such Shares and Voting
Preferred Shares will not be subject to any claims by virtue
of rights, options, contracts, calls, agreements or
otherwise.
(d) The sale by the Shareholder pursuant
to this Agreement and the delivery of the certificate(s)
representing the Shares and the Voting Preferred Shares to
the Company will transfer to the Company good and valid
title to the Shares and the Voting Preferred Shares free and
clear of all claims, liens, encumbrances, security
interests, proxies, voting and other restrictions or
interests of any nature whatsoever.
(e) The Shareholder acknowledges (i) that
representatives of the Company have strongly recommended
that the Shareholder engage separate counsel to represent
the Shareholder in connection with the negotiation of this
Agreement, and (ii) that the Shareholder has determined,
nevertheless, not to be represented by counsel in the
negotiation of this Agreement. The Shareholder has made this
decision in part based upon his own [the] extensive business
=======
and investment experience [of Richard C. Jelinek], as well
as the involvement of William G. Brown, a director and
secretary of the Company, and a partner in the law firm of
Bell, Boyd & Lloyd, counsel to the Company, in the
negotiation and preparation of the Agreement and related
documents, Mr. Brown having had a long-standing personal and
business relationship with the Shareholder [Mr. Jelinek];
===========
however, the Shareholder acknowledges that Mr. Brown has
been acting solely as a representative of the Company, and
has not been representing the Shareholder's interests, in
such matters. The Shareholder represents that he [the
==
Shareholder] has read and fully understands this Agreement,
the Warrant and the Promissory Note.
5. Representations and Warranties of the
Company. The Company hereby represents and warrants to the
Shareholder that:
(a) The Company is a corporation duly
organized, validly existing and in good standing under the
laws of the State of Delaware and has the requisite
corporate power and authority and all necessary governmental
approvals to own, lease and operate its properties and to
carry on its business as it is now been conducted.
(b) The Company has all necessary
corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by the Company and
the consummation by the Company of the purchase of the
Shares pursuant hereto have been duly and validly authorized
by all necessary corporate action and no other corporate
proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the purchase of
the Shares hereunder, other than the stockholder approval
contemplated in Sections 6(f) [6(e)] and 7(c) ==== below.
This Agreement has been duly and validly executed and
delivered by the Company and is the legal, valid and binding
obligation of the Company, enforceable against the Company
in accordance with its terms.
(c) The execution and delivery of this
Agreement by the Company do not, and performance of this
Agreement by the Company will not, (i) conflict with,
violate or breach the Certificate of Incorporation or
By-laws of the Company, (ii) conflict with, violate or
breach any order, judgment, injunction or decree of any
court, arbitrator, government or governmental agency or
instrumentality against or binding on the Company or by
which any of its assets or properties are bound or affected,
(iii) constitute a violation by the Company of any law,
rule, regulation, order, judgment or decree applicable to
the Company or by which any property or asset of the Company
is bound or affected or (iv) conflict with, violate, breach
or cause a default (or an event which with notice or lapse
of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or
cancellation of, any agreement or instrument to which the
Company is a party or by which any of the Company's assets
or properties are bound or affected or result in the
creation of a lien or other encumbrance on any of its assets
or properties.
6. Conditions Precedent to the Company's
Obligations. The obligations of the Company to purchase the
Shares and the Voting Preferred Shares and issue the Warrant
pursuant to this Agreement are subject to the fulfillment of
the following conditions:
(a) The representations and warranties of
the Shareholder contained in this Agreement shall be true
and correct in all material respects on and as of the
Closing Date, with the same force and effect as if made as
of the Closing Date;
(b) The performance of this Agreement by
the Company shall not conflict with or violate any order,
judgment or decree applicable to the Company or by which any
of its assets or properties are bound or affected;
(c) The Shareholder shall have delivered
to the Company certificate(s) evidencing all of the Shares,
together with stock powers in form satisfactory to the
Company executed in blank;
(d) The Shareholder shall have delivered
to the Company certificate(s) evidencing all of the Voting
Preferred Shares, together with stock powers in form
satisfactory to the Company executed in blank;
(e) The Shareholder shall have delivered
==========================================
to the Company his resignation as Chairman of the Company,
============================================================
it being understood that the Shareholder will remain a
============================================================
director of the Company;
=======================
(f) The stockholders of the Company shall
===
have approved the transactions contemplated by this
Agreement; and
(g)[(f)] All conditions to the closing of
===
the transactions contemplated by the Stock Purchase and
Warrant Agreement dated the date hereof between Boston Safe
===========
Deposit and Trust Company of California, or its successors,
============================================================
as trustee of the Richard C. Jelinek Charitable Remainder
============================================================
Unitrust dated August 3, 1993 (the "Trust") [Richard C.
==============================================
Jelinek] and the Company (the "Trust["Jelinek] Agreement")
======
shall have been satisfied.
7. Conditions Precedent to the
Shareholder's Obligations. The obligations of the
Shareholder to sell the Shares and Voting Preferred Shares
pursuant to this Agreement are subject to the fulfillment of
the following conditions:
(a) The representations and warranties of
the Company contained in this Agreement shall be true and
correct in all material respects on and as of the Closing
Date, with the same force and effect as if made as of the
Closing Date;
(b) The Company shall have delivered to
the Shareholder (i) by wire transfer an amount equal to the
Cash Consideration, (ii) the Promissory Note, and (iii) the
Warrant;
(c) The stockholders of the Company shall
have approved the transactions contemplated by this
Agreement;
(d) All conditions to the closing of the
transactions contemplated by the Trust [Jelinek] Agreement
=====
shall have been satisfied.
8. Additional Agreements of the
Shareholder.
(a) The Shareholder agrees that, for a
period of five years from the date of this Agreement, the
Shareholder will not, without the prior consent of the
disinterested members of the Board, transfer any shares of
Common Stock held by the Shareholder immediately after the
Closing (the "Remaining Shares"), or any shares of Common
Stock issuable upon exercise of the Warrant ("Warrant
Shares"), except as provided in the following sentence. The
restriction set forth above shall lapse as to 20% of the
Remaining Shares and as to 20% of any outstanding Warrant
Shares on each anniversary of the date of this Agreement,
provided that any transfer of Remaining Shares or Warrant
Shares as to which such restriction has lapsed may only be
made (i) to a member of the immediate family of the
===
Shareholder [Mr. Jelinek] or any trust, partnership, or
===========
corporation beneficially owned in its entirety by members of
the immediate family of the Shareholder [Mr. Jelinek], (ii)
===============
as a gift to any tax-exempt organization, or (iii) in a
transaction satisfying the requirements of Rule 144
promulgated under the Securities Act of 1933.
(b) The Shareholder further agrees that,
from the date hereof through and including the fifth
anniversary of the date hereof, without the Company's prior
written consent, the Shareholder will not:
(i) acquire, announce an
intention to acquire, offer or propose to acquire,
or agree to acquire, directly or indirectly, by
purchase or otherwise beneficial ownership of any
Common Stock or other voting securities of the
Company (collectively the "Voting Securities") or
direct or indirect rights or options to acquire
(through purchase, exchange, conversion or
otherwise) any Voting Securities;
(ii) make, or in any way
participate, directly or indirectly (other than
===========
solely as a member of the Company's Board of
===================================================
Directors in connection with solicitations by the
===================================================
entire Board of Directors), in any "solicitation"
==========================
of proxies (as such terms are defined in Rule 14a-1
under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) to vote any Voting
Securities, seek to advise, encourage or influence
any person or entity with respect to the voting of
any Voting Securities, initiate or propose any
shareholder proposal or induce or attempt to induce
any other person to initiate any shareholder
proposal;
(iii) make any statement or
proposal, whether written or oral, to the Board of
Directors of the Company, or to any director,
officer or agent of the Company, or make any public
announcement or proposal whatsoever with respect to
a merger or other business combination, sale or
transfer of assets, recapitalization, dividend,
share repurchase, liquidation or other
extraordinary corporate transaction with the
Company or other transaction which could result in
a change of control, or solicit or encourage any
other person to make such statement or proposal;
(iv) after consummation of the
Closing, form, join or in any way participate in a
"group" (within the meaning of Section 13(d)(3) of
the Exchange Act) with respect to any securities of
the Company;
(v) otherwise act, alone or in
concert with others, to seek to exercise any
control over the management, Board of Directors or
policies of the Company[, other than in the
performance in the normal course of his duties as a
director of the Company];
(vi) make a public request to the
Company (or its directors, officers, shareholders,
employees or agents) to amend or waive any
provisions of this Agreement, the Certificate of
Incorporation or By-Laws of the Company;
(vii) take any action which might
require the Company to make a public announcement
regarding the possibility of any transaction
referred to in paragraph (ii) above or similar
transaction or, advise, assist or encourage any
other persons in connection with the foregoing; or
(viii) disclose any intention,
plan or arrangement inconsistent with the
foregoing.
(c) The Shareholder agrees that he [the
Shareholder] will vote in favor of approval of the
transactions contemplated by this Agreement at least that
number of shares of Common Stock as represents the same
percentage of the Shareholder's holdings of Common Stock as
the number of shares of Common Stock voted in favor of such
approval by holders other than the Shareholder represents of
all shares voted on such proposal (excluding shares which
are not present, are not voted or abstain) by holders other
than the Shareholder.
(d) The Shareholder agrees that he will
==========================================
resign as Chairman of the Board (while remaining a director)
============================================================
concurrently with the closing of the purchase and sale
============================================================
contemplated herein.
====================
9. Additional Agreements of the Company.
The Company agrees that it will use its reasonable best
efforts to cause its upcoming Annual Meeting of Stockholders
(the "Annual Meeting") to be held on March 3, 1997 or as
soon thereafter as practicable, that it will seek approval
of the transactions contemplated in this Agreement at the
Annual Meeting, and that it will promptly prepare and file
with the Securities and Exchange Commission ("SEC")
preliminary proxy materials, and as promptly as practicable
following SEC review, mail definitive proxy materials to
stockholders, in connection with the Annual Meeting.
10. Registration Rights. The Shareholder
shall have the following rights with respect to the Warrant
Shares.
10.1 Demand Registrations.
(a) Upon the written request of the
Shareholder that the Company register all or part of the
Warrant Shares then owned by the Shareholder or which the
Shareholder has a right to acquire upon exercise of the
Warrant (which request shall satisfy the requirements of
paragraph (c) of this Section 10.1), the Company shall,
subject in all cases to the provisions of paragraph (b) of
this Section 10.1, thereupon, use its reasonable best
efforts to cause the Warrant Shares specified in such
request to be so registered as soon as practicable, but not
later than 90 days after the date of the Shareholder's
written request to register.
(b) The Company's obligation to register
all or part of the Warrant Shares pursuant to paragraph (a)
of this Section 10.1 shall in all cases be subject to the
following limitations and qualifications:
(i) The Company shall (x) be
required to effect only one such registration if
such registration is ordered or declared effective
and (y) not be obligated to file a registration
statement at any time if a special audit of the
Company would be required by the rules and
regulations of the Securities and Exchange
Commission (the "Commission") in connection
therewith; and
(ii) The Company shall be
entitled to postpone for a reasonable period of
time not to exceed 90 days the filing of any
registration statement otherwise required to be
prepared and filed by it if, at the time it
receives a request for registration, the Company
determines, in its reasonable judgment, that such
registration would materially interfere with any
financing, acquisition, corporate reorganization or
other material transaction then being contemplated
by its Board of Directors, involving the Company,
and promptly gives the Shareholder written notice
of such determination and the reasons therefor,
provided that the Company shall not defer its
obligations in this manner more than twice in any
twelve month period and the Company shall not defer
its obligations until 90 days have expired after
any prior deferral. In such event, the Shareholder
shall have the right to withdraw the request for
registration by giving written notice to the
Company within 30 days after receipt of the notice
of postponement (and, in the event of such
withdrawal, such request shall be ignored for
purposes of counting the demand registration to
which the Shareholder is entitled pursuant to this
paragraph (b)).
For purposes of this paragraph (b), "special audit"
shall mean an audit other than a year-end audit, requiring
an opinion of the Company's independent public accountants.
(c) Any written request of the Shareholder made
pursuant to paragraph (a) of this Section 10.1
shall:
(i) specify the number of the Warrant Shares
which the Shareholder intends to offer and
intends to sell;
(ii) state the firm intention of the
Shareholder to offer such shares for sale;
(iii) describe the intended method of
distribution of such shares; and
(iv) contain an undertaking on the part of the
Shareholder to provide all such
information and materials concerning the
Shareholder and take all such action as
may be required to permit the Company to
comply with all applicable requirements of
the Commission and to obtain acceleration
of the effective date of the registration
statement.
10.2 Participation Registrations.
(a) If, at any time from the date hereof,
the Company shall propose to register under the Securities
Act an offering of Common Stock to be offered and sold by it
or any stockholder, it shall give written notice of such
proposed registration to the Shareholder as promptly as
possible and shall, subject in all cases to paragraph (b) of
this Section 10.2, use its reasonable best efforts to
include in the offering such number of the Warrant Shares
then owned by the Shareholder as the Shareholder shall
request, within 10 days after the giving of such notice, to
be included, such offering to be upon the same terms
(including the method of distribution) as the Common Stock
being sold by the Company pursuant to any such offering.
(b) The Company's obligation to include
the Warrant Shares owned by the Shareholder in any offering
pursuant to paragraph (a) of this Section 10.2 shall in all
cases be subject to the following limitation and
qualifications:
(i) The Company shall not be required to give
notice to the Shareholder or include such
shares in any such registration if the
proposed registration is (x) a
registration of stock option or
compensation plan or of the Company Common
Stock issued or issuable pursuant to any
such plan, or (y) a registration of the
Company Common Stock proposed to be issued
in exchange for securities or assets of,
or in connection with a merger or
consolidation with, another corporation;
(ii) The Company may require that the number of
such shares requested to be included in
such registration be reduced, or that all
such shares be excluded from any such
registration, if it is advised in writing
by its managing underwriter that such
reduction or exclusion, as the case may
be, is necessary to permit the orderly
sale and distribution of the securities
being offered by the Company. Any
reduction shall be made pro rata among all
Selling Shareholders in proportion to the
relative number of shares sought by each
to be registered. If the Company shall
require such a reduction, the Shareholder
shall have the right to withdraw from the
offering;
(iii) The Company may, in its sole discretion
and without the consent of the
Shareholder, withdraw such registration
statement and abandon the proposed
offering in which the Shareholder had
requested to participate; and
(iv) The Company shall be required to effect
only one such registration; provided that
the Shareholder's right to registration
under this Section 10.2 shall not expire
unless all shares the Shareholder has
requested under Section 10.2(a) to be
registered have been so registered.
10.3 Certain Covenants of the Company.
(a) In connection with any registration of
the Warrant Shares undertaken by the Company pursuant to
Section 10.1 and, if and to the extent appropriate, Section
10.2, the Company shall:
(i) prepare and file with the Commission a
registration statement with respect to
such shares and use its best efforts to
cause such registration statement to
become effective;
(ii) prepare and file with the Commission such
amendments and supplements to such
registration statement and the prospectus
used in connection therewith as may be
necessary to keep such registration
statement current for such period not to
exceed 270 days as the Shareholder shall
request and to comply with the provisions
of the Securities Act with respect to the
sale of all the Warrant Shares covered by
such registration statement during such
period;
(iii) provide the Shareholder a reasonable
opportunity to review and, in the case of
registrations effected pursuant to Section
10.1, approve prior to filing (x) any
registration statement filed by the
Company in connection with a registration
effected pursuant to Section 10.1 or
Section 10.2 and (y) any amendments or
supplements to such registration statement
and any prospectus used in connection
therewith;
(iv) furnish to the Shareholder such number of
conformed copies of such registration
statement and of each such amendment and
supplement thereto (in each case including
all exhibits), such number of copies of
the prospectus included in such
registration statement (including each
preliminary prospectus and prospectus
supplement), copies of which are in
conformity with the requirements of the
Securities Act, and such other documents
as the Shareholder may reasonably request
in order to facilitate the sale of the
Warrant Shares covered by such
registration statement;
(v) use its best efforts to register or
qualify the Warrant Shares covered by such
registration statement under such other
securities or blue sky laws of such
jurisdictions as the Shareholder shall
reasonably request, and do any and all
other acts and things which may be
reasonably necessary or advisable to
enable the Shareholder to consummate the
sale in such jurisdictions of such shares;
provided that the Company shall not for
any such purpose be required to qualify
generally to do business as a foreign
corporation in any jurisdiction wherein it
would not but for the requirements of this
paragraph (v) be obligated to be so
qualified, to subject itself to taxation
in any such jurisdiction or to consent to
general service of process in any such
jurisdiction;
(vi) notify the Shareholder, at any time when a
prospectus relating to the Warrant Shares
covered by such registration statement is
required to be delivered under the
Securities Act, of the Company's becoming
aware that the prospectus included in such
registration statement, as then in effect,
includes an untrue statement of a material
fact or omits to state any material fact
required to be stated therein or necessary
to make the statements therein not
misleading in light of the circumstances
then existing, and at the request of the
Shareholder promptly prepare and furnish
to the Shareholder a reasonable number of
copies of a prospectus supplemented or
amended so that, as thereafter delivered
to the purchasers of such shares, such
prospectus shall not include an untrue
statement of a material fact or omit to
state a material fact required to be
stated therein or necessary to make the
statements therein not misleading in light
of the circumstances then existing;
(vii) use its best efforts to cause all the
Warrant Shares covered by such
registration statement to be listed on
each securities exchange on which
securities of the same class issued by the
Company are then listed or, if there shall
then be no such listing, to be accepted
for quotation on NASDAQ;
(viii) provide a transfer agent and registrar for
the Warrant Shares covered by such
registration statement not later than the
effective date of such registration
statement; and
(ix) enter into such agreements (including an
underwriting agreement in customary form)
and take such other actions as the
Shareholder reasonably requests in order
to expedite or facilitate the disposition
of such shares.
(b) The Company shall take all reasonable
actions necessary so as to enable the Shareholder to make
sales of the Warrant Shares under Rule 144 (or any successor
rule) under the Securities Act and in accordance with
applicable laws, rules and regulations, the requirements of
the Company's transfer agent(s), and the reasonable
requirements of the broker through which the sales are
proposed to be executed.
(c) From and after the date of this
Agreement, the Company shall not, without the written
consent of the Shareholder, enter into any agreement
granting to any person or entity any registration rights
that are more favorable than the registration rights granted
to the Shareholder under this Note, unless the same rights
are granted to the Shareholder.
10.4 Standstill. In the event of a
registered public offering, the Shareholder will agree with
the underwriters not to sell any Shares for up to 180 days
following commencement of the offering if and only if the
Shareholder has been offered the opportunity to participate
in the offering and the underwriters have not reduced the
number of shares that the Shareholder may sell.
10.5 Expenses.
(a) The Shareholder shall pay all
out-of-pocket expenses incurred by the Company in connection
with any registration of the Warrant Shares pursuant to
Section 10.1 including, without limitation, all registration
and filing fees, printing expenses, underwriting discounts,
commissions and expenses, fees and disbursements of the
Company's legal counsel and accountants, transfer agents and
registrars, and expenses incidental to any post-effective
amendment to any such registration statement. For purposes
of this Section 10.5, "out-of-pocket expenses" shall not
include salaries of the Company employees or expenses
attributable to the Company's corporate overhead.
(b) In connection with any registration
pursuant to Section 10.2, the Company shall pay all
registration and filing fees, underwriting discounts,
commissions and expenses (other than those attributable to
the Warrant Shares being sold by the Shareholder), printing
expenses, fees and disbursements of the Company's legal
counsel and accountants, transfer agents and registrars
fees, and expenses incidental to any post-effective
amendment to any such registration statement. The
Shareholder shall pay all other out-of-pocket expenses
attributable to the inclusion in the offering of the Warrant
Shares being sold by it including, without limitation,
registration and filing fees and underwriting discounts,
commissions and expenses attributable thereto and fees and
disbursements of the Shareholder's legal counsel and
accountants.
10.6 Indemnification.
(a) In the case of each registration
effected by the Company pursuant to Section 10.1 or Section
10.2, the Company agrees to indemnify and hold harmless the
Shareholder, each underwriter of the Warrant Shares so
registered and each person who controls any such underwriter
within the meaning of Section 15 of the Securities Act,
against any and all losses, claims, damages or liabilities
to which they or any of them may become subject under the
Securities Act or any other statute or common law, including
any amount paid in settlement of any litigation, commenced
or threatened, if such settlement is effected with the
written consent of the Company, which consent is not
unreasonably withheld in light of all factors which are
important to such indemnified party, and to reimburse them
for any legal or other expenses incurred by them in
connection with investigating any claims and defending any
actions, insofar as any such losses, claims, damages,
liabilities or actions arise out of or are based upon (i)
any untrue statement or alleged untrue statement of a
material fact contained in the registration statement
relating to the sale of the Warrant Shares, or any
post-effective amendment thereto, or the omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein
not misleading or (ii) any untrue statement or alleged
untrue statement of a material fact contained in any
preliminary prospectus, if used prior to the effective date
of such registration statement, or contained in the final
prospectus (as amended or supplemented if the Company shall
have filed with the Commission any amendment thereof or
supplement thereto) if used within the period during which
the Company is required to keep the registration statement
to which such prospectus relates current, or the omission or
alleged omission to state therein (if so used) a material
fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not
misleading; provided, however, that the indemnification
agreement contained in this paragraph (a) shall not (x)
apply to such losses, claims, damages, liabilities or
actions arising out of, or based upon, any such untrue
statement or alleged untrue statement, or any such omission
or alleged omission, if such statement or omission was made
in reliance upon and in conformity with information
furnished in writing to the Company by the Shareholder or
such underwriter for use in connection with the preparation
of the registration statement, any preliminary prospectus or
final prospectus contained in the registration statement, or
any amendment or supplement thereto, or (y) inure to the
benefit of any underwriter or any person controlling such
underwriter, if such underwriter failed to send or give a
copy of the final prospectus to the person asserting the
claim at or prior to the written confirmation of the sale of
the Warrant Shares to such person and if the untrue
statement or omission concerned had been corrected in such
final prospectus. Notwithstanding the foregoing, the Company
agrees to be subject to such indemnification and
contribution provisions as the underwriters may reasonably
request in connection with any underwritten offering and
that to the extent that the provisions on indemnification
and contribution contained in the underwriting agreement
entered into in connection with such offerings are in
conflict with the foregoing provisions, the provisions in
the underwriting agreement shall control.
(b) In the case of each registration
effected by the Company pursuant to Section 10.1 or 10.2,
the Shareholder and each underwriter of the Warrant Shares
to be registered (each such party and such underwriters
being referred to severally in this paragraph (b) as the
"indemnifying party") shall agree in the same manner and to
the same extent as set forth in paragraph (a) of this
Section 10.6 to indemnify and hold harmless the Company,
each person who controls the Company, the directors of the
Company and those of its officers who shall have signed any
such registration statement, with respect to any untrue
statement or alleged untrue statement in, or omission or
alleged omission from, such registration statement or any
post-effective amendment thereto or any preliminary
prospectus or final prospectus (as amended or as
supplemented, if amended or supplemented as aforesaid)
contained in such registration statement, if such statement
or omission was made in reliance upon and in conformity with
information furnished in writing to the Company by such
indemnifying party specifically for use in connection with
the preparation of such registration statement or any
preliminary prospectus or final prospectus contained in such
registration statement or any such amendment or supplement
thereto.
(c) Each indemnified party shall, with
reasonable promptness after its receipt of written notice of
the commencement of any action against such indemnified
party in respect of which indemnity may be sought from an
indemnifying party on account of an indemnity agreement
contained in this Section 10.6, notify the indemnifying
party in writing of the commencement thereof. In case any
such action shall be brought against any indemnified party
and it shall so notify an indemnifying party of the
commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent it may
wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified
party under this Section 10.6 for any legal or other
expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable
costs of investigation. Notwithstanding the foregoing, the
indemnifying party shall promptly pay as incurred the
reasonable fees and expenses of the counsel retained by the
indemnified party in the event (i) the indemnifying party
and the indemnified party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any
such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and
the indemnified party shall have reasonably concluded that
there may be a conflict between the positions of the
indemnifying party and the indemnified party in conducting
the defense of any such action or that there may be legal
defenses available to it or other indemnified parties that
are different from or in addition to those available to the
indemnifying party. The indemnity agreements in this Section
10.5 shall be in addition to any liabilities which the
indemnifying parties may have pursuant to law.
11. Cooperation, Etc. The Company and the
Shareholder shall cooperate and use all efforts to take all
action, and to do all things necessary, proper or advisable
to consummate the sale of the Shares to the Company and to
otherwise consummate and make effective the transactions
contemplated by this Agreement, and shall refrain from
taking any action that shall be inconsistent with, or
contrary to, this Agreement. Each of the parties hereto
shall cooperate and use all reasonable efforts to resist any
attempts to impose any legal prohibition or restraint on the
purchase and sale of the Shares in accordance herewith and,
in the event thereof, to remove, vacate and/or reverse any
such prohibition or restraint.
12. Expenses. The Shareholder shall be
responsible for any legal fees or other expenses incurred by
the Shareholder in connection with the transactions
contemplated by this Agreement. The Company shall be
responsible for any legal fees or other expenses incurred by
it in connection with the transactions contemplated by this
Agreement including the fees due to the investment banking
firm of Punk, Ziegel & Knoell ("Punk Ziegel") and the
expenses of preparation, printing and mailing of the
Company's proxy statement.
13. Non-Disclosure. The Company and the
Shareholder acknowledge that disclosure concerning this
Agreement is required by law, and agree that each party will
have the opportunity to review the Company's proxy
materials, the Company's 8-K (if any) and the Shareholder's
Amendment to Schedule 13D with respect to this Agreement
prior to the filing thereof. Except for such filings and
except to the extent otherwise required by law, neither the
Company nor the Shareholder shall make any disclosure of the
terms hereof or the negotiations with respect hereto (other
than to the parties hereto and their representatives and
advisors) except pursuant to a press release which shall be
approved by all of the parties hereto prior to the release
thereof. The Shareholder (and their agents and advisors)
shall not make any disparaging public statements with
respect to the Company or any of its employees, and the
Company (and its employees, agents and advisors) shall make
no disparaging public statements concerning the Shareholder.
14. Amendments; Waivers. This Agreement
shall not be modified, amended, altered or supplemented, nor
shall any provision of this Agreement be waived, except upon
the execution and delivery of a written agreement executed
by each of the parties hereto.
15. Assignments; Successors.
(a) Neither the Company nor the
Shareholder shall assign any of their rights or delegate any
of their duties under this Agreement.
(b) This Agreement shall be binding upon,
inure to the benefit of, and be enforceable by, the parties
hereto. Nothing expressed or referred to in this Agreement
is intended or shall be construed to give any person other
than the parties to this Agreement any legal or equitable
right, remedy or claim under or in respect of this Agreement
or any provision contained herein.
16. Specific Performance and Injunctive
Relief. The parties hereto agree that irreparable damage
would occur in the event of the breach of any provision of
this Agreement and that the parties shall be entitled to
specific performance of the terms hereof, in addition to any
other remedy at law or equity.
17. Notices. All notices and other
communications provided for hereunder shall be in writing
(including telex and telecopy communication) and shall be
sent by mail, telex, telecopier or hand delivery: (i) if to
the Company, at its address at One Rotary Center, Suite
1111, Evanston, IL 60201, Attention: Patrick C. Sommers, or
(ii) if to the Shareholder, at 0312 Ridge Road, Aspen,
Colorado 81611 [Mellon Private Asset Management, Boston Safe
Deposit and Trust Company of California, 400 South Hope
Street, Suite 400, Los Angeles, California 90071, attention
Ms. M. Patricia Whiteley].
18. Governing Law. This Agreement shall be
governed by, and construed in accordance with, the laws of
the State of Illinois applicable to contracts executed in
and to be performed in that State.
19. Headings. The descriptive headings
contained in this Agreement are included for convenience of
reference only and shall not affect in any way the meaning
or interpretation of this Agreement.
20. Counterparts. This Agreement may be
executed in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when
executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed as of the date first written
above.
MEDICUS SYSTEMS CORPORATION
By /s/ Patrick C. Sommers
----------------------------
Patrick C. Sommers,
President and Chief
Executive Officer
THE SHAREHOLDER
By /s/ Richard C. Jelinek
----------------------------
Richard C. Jelinek
[By /s/ Brenden Gilmore
----------------------------
Brenden Gilmore,
as Trustee]
<PAGE>
Punk, Ziegel & Knoell
520 Madison Avenue 555 Montgomery Street
New York, NY 10022 San Francisco, CA 94111
212.308.9494 415.675.7960
Fax 212.308.2203 Fax 415.675.7979
January 2, 1997
CONFIDENTIAL
The Special Committee of the Board of Directors
Medicus Systems Corporation
One Rotary Center, Suite 1111
Evanston, IL 60201
Ladies and Gentlemen:
You have requested our opinion as to the fairness,
from a financial point of view, to Medicus Systems
Corporation (the "Company") and to its shareholders, with
the exception of Richard C. Jelinek, Chairman of the Board
of Directors, of the consideration (as defined below) to be
paid to Mr. Jelinek and the Boston Safe Deposit and Trust
Company of California as trustee under Richard C. Jelinek
Charitable Remainder Unitrust (the "Trust") pursuant to
Stock Purchase and Warrant Agreements (the "Agreements")
dated January 2, 1997, between the Company, Mr. Jelinek and
the Trust. This letter confirms the oral opinion which we
rendered to you on January 2, 1997 and, accordingly, is
dated as of the deliverance of such oral opinion. Pursuant
to the Agreements, the Company will acquire one million
shares of Common Stock $.01 par value ("Common Stock") of
Mr. Jelinek's total holdings of 1,837,900 shares of Common
Stock of the Company; and repurchase all 500 shares of the
Company's Voting Preferred Stock held by Mr. Jelinek and the
Trust. You have advised us that the consideration for the
above transaction (the "Transaction") reflected in the
Agreements will consist of (i) $4.5 million in cash; (ii) $2
million in 8% Notes, and (iii) five year Stock Exchange and
Subscription Warrants to purchase 400,000 shares of Common
Stock. The terms of the foregoing Notes and Warrants are set
forth in Exhibits to the Agreements. The foregoing
consideration is referred to herein as the "Consideration."
Punk, Ziegel & Knoell, as part of its investment
banking services, is often engaged in the valuation of
businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, secondary
distributions of securities, private placements and
valuations for corporate and other purposes. We are familiar
with the Company, having participated as a co-manager in its
1993 Common Stock offering, and we currently act as a market
maker of the Company's Common Stock. We have not acted as a
financial advisor to the Special Committee of the Board of
Directors of the Company in connection with the Agreements,
and we will receive a fee for our services upon delivery of
this opinion.
Punk, Ziegel & Knoell regularly publishes research
reports regarding the healthcare information systems
industry and the business and securities of publicly-owned
companies in that industry.
In rendering our opinion, we have reviewed, among
other things, the Agreements; the draft Proxy Statement
dated as of January 2, 1997; Annual Reports to Stockholders
on Form 10-K of the Company for the years ended May 31,
1996, 1995 and 1994; the draft Stock Purchase and Warrant
Agreements dated as of January 2, 1997; certain interim
reports to Stockholders on Form 10-Q of the Company; certain
internal financial analyses and forecasts for the Company
prepared by management of the Company; the pro forma
financial impact of the Transaction on the Company's
financial statements and a memorandum of the Company's
counsel addressing certain legal issues relating to the
Transaction. We also have held discussions with members of
senior management of the Company regarding past and current
business operations, financial condition and future
prospects of the Company regarding the attainability of the
projections that the management of the Company has furnished
to us. In addition, we have reviewed the reported price and
trading activity for the capital stock of the Company,
compared certain financial and stock market information for
the Company with similar information for certain other
companies the securities of which are publicly traded,
reviewed recent transactions involving premiums paid in
self-tender offers, performed a series of financial analyses
to determine the fair value of the Company's Common Stock,
reviewed the financial terms of certain recent business
combinations in the healthcare information systems industry,
reviewed the premiums attributable to voting rights in
companies whose capitalization structure consists of two
classes of stock, the terms of which are equal with the
exception of voting rights; and reviewed the financial
literature regarding premiums paid for super voting
securities and performed such other studies and analyses as
we considered appropriate.
We have relied, without independent verification,
upon the accuracy and completeness of all of the financial
and other information reviewed by us for purposes of this
opinion. We have assumed that the information presents
fairly in all material respects the financial position and
results of operations of the Company for the periods set
forth therein. Management of the Company has advised us that
the internal projections provided to us reflect the best
currently available judgment and estimates by them, and we
have assumed, with your consent, that the results
contemplated in such projections, will be realized in the
amounts and at the times contemplated therein. We have not
made an independent evaluation or appraisal of the assets
and liabilities of the Company and we have not been
furnished with any such evaluation or appraisal.
Based upon and subject to the foregoing and based
upon such other matters we consider relevant, it is our
opinion that as of the date hereof, the Consideration to be
paid to Mr. Jelinek and the Trust by the Company pursuant to
the Agreements is fair from a financial point of view to the
Company and its shareholders (except for Mr. Jelinek).
Very truly yours,
By /s/ Punk, Ziegel & Knoell
----------------------------
Punk, Ziegel & Knoell
<PAGE>
PROXY CARD PROXY CARD
PROXY MEDICUS SYSTEMS CORPORATION PROXY
Annual Meeting, March 19, 1997
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Patrick C. Sommers and William G. Brown, each with
full power of substitution, are hereby authorized to vote
all shares of Common Stock of Medicus Systems Corporation
which the undersigned would be entitled to vote if
personally present at the Annual Meeting of Stockholders of
Medicus Systems Corporation to be held on March 19, 1997,
and at any adjournment thereof, as indicated herein.
The shares represented by this proxy will be voted
as directed herein, but if no direction is given, the shares
will be voted FOR all nominees listed in Item 1, FOR the
proposal set forth in Item 2 to approve the Company's 1996
C.E.O. Replacement Stock Option Plan, FOR the proposal set
forth in Item 3 to approve the Company's 1996 C.E.O. Special
Stock Option Plan, FOR the proposal set forth in Item 4 to
approve the amendments to and restatement of the Company's
1989, 1991, 1993, 1993 Performance and 1994 Stock Option
Plans, FOR the proposal set forth in Item 5 to approve the
Company's 1997 Employee Stock Option and Restricted Stock
Plan, and FOR the proposal set forth in Item 6 to approve
agreements pursuant to which the Company would repurchase
from Richard C. Jelinek an aggregate of 1,000,000 shares of
Common Stock and 500 shares of Voting Preferred Stock. This
proxy can be revoked at any time before it is voted, either
in person at the Annual Meeting, by written notice to the
Secretary of the Company, or by delivery of a later-dated
proxy.
PLEASE MARK THIS PROXY AND
SIGN AND DATE IT ON THE REVERSE SIDE AND RETURN IT IN THE
ENCLOSED ENVELOPE
<PAGE>
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK
INK ONLY: The Board of Directors Recommends a Vote "FOR"
Each of the Listed Proposals.
1. Election of Directors Nominees: William G. Brown, Jon
E.M. Jacoby, Richard C. Jelinek, John P. Kunz, Risa
Lavizzo-Mourey, Patrick C. Sommers, Gail L. Warden
FOR [] WITHOLD [] FOR ALL []
(EXCEPT NOMINEES WITHIN BRACKETS)
2. Approval of the 1996 C.E.O. Replacement Stock Option
Plan described in the [GRAPHIC OMITTED] accompanying
Proxy Statement
FOR [] AGAINST [] ABSTAIN []
3. Approval of the 1996 C.E.O. Special Stock Option Plan
described in the [GRAPHIC OMITTED] accompanying Proxy
Statement
FOR [] AGAINST [] ABSTAIN []
4. Approval of the amendments to and restatement of the
Company's 1989, 1991, [GRAPHIC OMITTED] 1993, 1993
Performance and 1994 Stock Option Plans as described in
the accompanying Proxy Statement
FOR [] AGAINST [] ABSTAIN []
5. Approval of the Company's 1997 Employee Stock Option
and Restricted Stock [GRAPHIC OMITTED] Plan
FOR [] AGAINST [] ABSTAIN []
6. Approval of the agreements pursuant to which the
Company would repurchase [GRAPHIC OMITTED] from Richard
C. Jelinek an aggregate of 1,000,000 shares of Common
Stock and 500 shares of Voting Preferred Stock. Dated:
199 Signature(s)
FOR [] AGAINST [] ABSTAIN []
DATED: 199
------------- -----
Signatures:
----------------
Please sign exactly as your names (or names) appears herein.
Executors, administrators, trustees and other signing in
representative capacity should indicate the capacity in
which they sign. Where there is more than one owner, each
should sign.
<PAGE>
APPENDIX
A) This graph displays cumulative shareholder return
with the dollar amount on the Y axis and the time
period on the X axis.
